Class Notes Chapter 16 Part 2 and Appendix to Chapter 6 -...

The University of Texas at Austin
McCombs School of Business, Business Foundations Program
ACC 310F: Foundations of Accounting
Class Notes – Chapter 16 Part 2 and Appendix to Chapter 6
Source Document (from Chapter 4 and 6)
Today- $5,000
X 0.12 =600
1 year- $5,600
X 0.12 =672
Year 2- $6,272
Time Value of Money
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Future Value of $1
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Present Value of $1
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Future Value of an Annuity of $1
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Present Value of an Annuity of $1
Time Value of Money Calculations
Future Value of $1 PV x FV factor = FV
Present Value of $1 FV x PV factor = PV
Future Value of an Annuity of $1 Annuity Amount x FVa factor = FVa
Present Value of an Annuity of $1 Annuity Amount x PVa factor = PVa
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Capital Budgeting
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Outcome is uncertain.
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Decision may be difficult or impossible to reverse.
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Investment involves a long-term commitment
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Large amounts of money are usually involved.
Capital Budgeting Techniques
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Initial investment
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Incremental operating cash flows
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Terminal cash flow
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Net present value (NPV)
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Internal rate of return (IRR)
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Payback
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