Chapter 2 Net Present Value and Investment Decision
Chapter 2 Chapter 2 Net Present Value and Net Present Value and Investment Decision Investment Decision
Section 1 Net Present Value
Section 1 Section 1 Net Present Value Net Present Value
Time Value of Money Cash flows occur over a period of time Inflation erodes the value of money over time -What are the value of those cash flows in TODAY'S money slide 2
slide 2 Time Value of Money Time Value of Money Cash flows occur over a period of time Inflation erodes the value of money over time What are the value of those cash flows in TODAY’S money
The time value of money(1) To study the relationship between a dollar today and a (possible uncertain) dollar in the future Future Present value PV= C 1+r slide 3
slide 3 The time value of money (1) The time value of money (1) To study the relationship between a dollar today and a (possible uncertain) dollar in the future Future Present value r C PV + = 1 1
The time value of money (2) Net Present Value NPV=-Cost+PV Future Value and Compounding Simple interest:FV C *(1 +T *r) Compound interest:FV=C (1+r) slide 4
slide 4 The time value of money (2) The time value of money (2) Net Present Value Future Value and Compounding Simple interest: FV = C * (1 + T *r) Compound interest: FV = C * (1+r) T NPV = − + PVCost