ACCT 204 Lecture Notes - Lecture 8: Cash Flow, Net Present Value, Decision Rule
Document Summary
Time value of money: a dollar received today is worth more than a dollar to be received in the future. A dollar now be invested to generate additional returns: example: Alpha returns per year for each of the next 5 years. Beta returns per year for each of the next 10 years. Although the total cash returns are the same, the time value of money is better for alpha than beta. *with alpha, the money is returned sooner, allowing for enhanced reinvestment opportunities. Present value: 1/(1+i)^n, a ,000 lump sum amount to be received at the end of 10 years, at 8% annual interest, with semiannual compounding, would have a present value of ,410. Present value factor of at the end of 5 periods is 10% is 0. 621. Present value = x 0. 621 = ,105. Present value ordinary annuity: an investment that returns ,000 per year for five years.
