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these investments should be financed. The job of the financial manager is therefore to decide on both such
that shareholder value is maximized. Download free ebooks at bookboon.com
9 Corporate Finance Present value and opportunity cost of capital 3. Present value and opportunity cost of capital
Present and future value calculations rely on the principle of time value of money.
Time value of money
One dollar today is worth more than one dollar tomorrow. The intuition behind the time value of money principle is that one dollar today can start earning interest
immediately and therefore will be worth more than one dollar tomorrow. Time value of money
demonstrates that, all things being equal, it is better to have money now than later. 3.1 Compounded versus simple interest
When money is moved through time the concept of compounded interest is applied. Compounded interest
occurs when interest paid on the investment during the first period is added to the principal. In the
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This note was uploaded on 10/26/2012 for the course 19 19 taught by Professor - during the Spring '12 term at Sunway University College.
- Spring '12