March25 - Introduction to Capital Budgeting: Capital...

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1 Capital Budgeting: Part 1 Adam Presslee OfFce: HH384 Email: capressl@uwaterloo.ca Introduction to Capital Budgeting: Capital budgeting is a systematic approach to evaluating long-term investments and/or financing decisions Central to long-term decision making is the time value of money If the option exists to earn positive returns on investment (similar to opportunity cost), than $1 today is more valuable than $1 in 5 years Present and Future Value: Present value represents the amount today of a future investment, assuming a stated number of periods and a static interest rate Future value represents the amount that today’s investment will be in the future, assuming a stated number of periods and a static interest rate PV = FV /(1 + Interest ) years FV = PV *(1 + Interest ) years Present Value of Annuity: The present value of an annuity represents the amount today of a regular periodic payment, assuming a stated number of periods and a static interest rate: PV A = Annuity * Factor Interest , Periods PV A = Annuity * (1 + Interest ) Periods 1 Interest *(1 + Interest ) Periods
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This note was uploaded on 05/11/2011 for the course AFM 102 taught by Professor R.ducharme during the Spring '09 term at Waterloo.

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March25 - Introduction to Capital Budgeting: Capital...

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