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Ecn 801 assignment 1

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Department
Economics
Course
ECN 801
Professor
Trimmel
Semester
Spring

Description
1aTimevalueofmoneyisaconceptthatplacesamonetaryvalueontimeTheconceptexpandsontheexpressionofmakingmoneyworkforyouInsteadofhavingcashormoneyinabankaccountlyingaroundwithnopurposeitismuchbettertohaveitcollectinterestAnexampleofthiswouldbeafactorythathasannualrevenueof10millionattheendoftheyearthefactorydecidestoexpandHoweverthecompanyseesthatiftheywaitanextrayeartheywouldbeabletoinvesttheir10millionrevenueataninterestof10andinflationrateofonly35ThiswouldallowthemtohaveabiggerexpansionbudgetfornextyearTheywouldearn1millionininterestonthe10milliontheywillinvestmakingtheirexpansionbudget11millionminustheinflationfornextyearbMARRMinimumAttractiveRateofReturnisestablishedinorderforthecompanytoreachadecisionofrejectingoracceptinganoffertofinanceanalternativeInordertoaccepttheproposaltheMARRhastobehigherthanthecostofcapitalorthecostofborrowingthemoneyinthefirstplaceIfthecompanycanborrowthecapitalat2peryearandifthealternativeprojectcanbeclearedat4peryearthentheMARRis6peryearTheMARRisplacedinordertoallowthecompanytoborrowmoneyatthelowestornocostcSimpleinterestiscollectinginterestonlyon
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