Present Value and Investment Decisions

Present Value and Investment Decisions - Present Value and...

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Present Value and Investment Decisions Firms purchase capital goods to increase their future output and income. Income earned in the future  is often evaluated in terms of its  present value . The present value of future income is the value of  having this future income today.  Present value formula.  The present value of receiving $20,000 one year from now can be  calculated using the  present value formula.  The formula for finding the present value of  X  dollars  received  t  years from now at the current market interest rate  r  is  For example, if  X  = $20,000,  t  = 1, and  r  = .05, the present value of $20,000 received  one  year from  now is 20,000/(1.05) 1  = $19,047.62.  The present value of $20,000 received  two  years from now at an interest rate of 5% is found by  setting  X  = $20,000,  t  = 2, and  r  = .05. The present value in this case is $20,000/(1.05)
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