Chapter 12-Student

# Chapter 12-Student - CHAPTER 12 Class Notes Capital...

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Capital Budgeting Decisions Compiled by: Janice H. Fergusson, CPA Certain materials used with permission of McGraw-Hill Companies, Inc. The Concept of Present Value The time value of money concept recognizes that a dollar today is worth more than a dollar a year from now for the simple reason that a dollar can be invested today to yield more than a dollar in the future. Therefore, projects that promise earlier returns are preferable to those that promise later returns. When an investment involves cash flows over a period of time, the time value of money should be taken into account. PRESENT VALUE TABLES Excerpt from Exhibit 12B-1 (page 598): ( ) \$1 Present Value of \$1;  P =  n 1+r Periods . . . 11% 12% 13% . . . 1 0.901 0.893 0.885 2 0.812 0.797 0.783 3 0.731 0.712 0.693 4 0.659 0.636 0.613 5 0.593 0.567 0.543 Note: • The numbers in the table represent the present value, at the specified discount rate, of \$1 received at the end of the specified period. • The present value is the amount that would have to be put into the bank today at the specified interest rate in order to have accumulated \$1 at the end of the specified period. • The present value factors decrease as the number of periods increase

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## This note was uploaded on 07/02/2011 for the course ACCT 226 taught by Professor Smith during the Spring '10 term at South Carolina.

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Chapter 12-Student - CHAPTER 12 Class Notes Capital...

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