So - So: First Principle: Opportunity cost: What else could...

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So: First Principle: Opportunity cost: What else could you do with the money? Second Principle: Open access to capital markets allows you to shape your consumption profile Third Principle: Moving your possible consumption profile up and to the right is a good thing: Fourth Principle: Well-functioning capital markets mean that all present-future consumption possibility profiles are parallel.
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Fourth Principle: Net Present Value is where the interest-rate line hits the x-axis: how much you could get today if you mortgaged all the future cash flows from the project you are undertaking. Thus maximizing NPV is the way to get your consumption-possibilities line as far out as possible. Caveat: borrow and lend at the same rate--you must be able to choose to either a borrower or a lender be at the same rate. Problem of imperfect markets Not that big a problem. But, as Brealey and Myers say, "having glimpsed the problems of imperfect markets, we shall, like an economist in a shipwreck, simply assume
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This note was uploaded on 11/10/2011 for the course GEB GEB1011 taught by Professor Henn during the Fall '10 term at Broward College.

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So - So: First Principle: Opportunity cost: What else could...

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