Bus 215 Section 08 November 28, 2010 Homework Assignment: Chapter 14 Q14-2) The term the time value of money is meant to recognize that a dollar today is worth more than a dollar a year from now if for no other reason than that you could put a dollar in a bank today and have more than a dollar a year from now. It is important to recognize the time value of money when evaluating investment proposals because capital investments usually earn returns that extend over fairly long periods of time. Q14-3) Discounting is the process of computing the present value of a future cash flow. It also recognizes the the time value of money and makes it possible to meaningfully add together. Q14-4) Accounting net income is not used in the net present value and internal rate of return when making capital budgeting decisions because accounting net income is based on accruals that ignore when cash flows occur. The present value of cash flow depends on when it occurs.
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This note was uploaded on 01/06/2012 for the course BUSINESS 215 taught by Professor Patriciamcquaid during the Fall '10 term at Cal Poly.