ECO 231 Lecture Notes - Lecture 1: Management, Net Present Value, Decision Rule
Document Summary
Running head: finance ch3: financial decision making & law of one price 1. Finance ch3: financial decision making & law of one price 2. Financial decision making & law of one price: valuing decisions. 1. 1 analysing costs and benefits: step: identifying costs & benefits of a decision, step: quantifying those costs & benefits, step: evaluating those costs and benefits in the same terms (cash today) 1. 2 using market prices to determine cash values. Competitive market: market in which a good can be bought and sold on same price independent of views and preferences of decision maker. Valuation principle: value of an asset to firm or its investors is determined by its competitive market price. 2. 1 time value of money: one dollar today is worth more than one dollar in a year (eg: could invest it) Time value of money: difference in value between money today & money in future. Finance ch3: financial decision making & law of one price 3.
