NPV - NET PRESENT VALUE TIME VALUE - WHY IT MATTERS AT ITS...

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Unformatted text preview: NET PRESENT VALUE TIME VALUE - WHY IT MATTERS AT ITS SIMPLEST, THE PRINCIPAL OF THE TIME VALUE OF MONEY SAYS THIS: A DOLLAR IN YOUR HAND TODAY IS WORTH MORE THAN A DOLLAR YOU EXPECT TO COLLECT TOMORROW - AND IT'S WORTH A WHOLE LOT MORE THAN A DOLLAR YOU EXPECT TO COLLECT 10 YEARS FROM NOW. A BUSINESS HAS TO SPEND CASH THAT IT HAS NOW IN HOPES OF REALIZING A RETURN AT SOME FUTURE DATE. PRESENT VALUE IS USED TO EVALUATE INVESTMENTS IN EQUIPMENT, REAL ESTATE, BUSINESS OPPORTUNITIES AND ACQUISITIONS. RETURN ON INVESTMENT (R01) SOME MANAGERS USE THE CONCEPT OF RETURN ON INVESTMENT (ROI) TO MAKE DECISIONS AND ASSESS FINANCIAL PERFORMANCE. ''WE INVESTED $10 MILLION IN THE PURCHASE OF LAND AND SOLD IT FOUR YEARS LATER FOR $15 MILLION. ROI IS 50%." ROI FAILS TO ACCOUNT FOR TIMING OF CASH FLOWS. (ONSIDER: INVESTMENT A PURCHASED A PIECE OF LAND FOR $1 MILLION: SOLD IT FOUR YEARS LATER FOR $1.5 NET PRESENT VALUE TIME VALUE - WHY IT MATTERS AT ITS SIMPLEST, THE PRINCIPAL OF THE TIME VALUE OF MONEY SAYS THIS: A DOLLAR IN YOUR HAND TODAY IS WORTH MORE THAN A DOLLAR YOU EXPECT TO COLLECT TOMORROW - AND IT'S WORTH A WHOLE LOT MORE THAN A DOLLAR YOU EXPECT TO COLLECT...
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NPV - NET PRESENT VALUE TIME VALUE - WHY IT MATTERS AT ITS...

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