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Unformatted text preview: s. When
the value of the benefits exceeds the value of
the costs, the decision will increase the market
value of the firm.
3.4 The Time Value of Money and Interest Rates
◗ The time value of money is the difference in value
between money today and money in the future.
◗ The rate at which we can exchange money today
for money in the future by borrowing or investing is the current market interest rate.
◗ The present value (PV ) of a cash flow is its value
in terms of cash today.
3.5 The NPV Decision Rule
◗ The net present value (NPV ) of a project is
PV(Benefits) – PV(Costs).
◗ A good project is one with a positive net present
◗ The NPV decision rule states that when choosing
from among a set of alternatives, choose the one
with the highest NPV. The NPV of a project is
equivalent to the cash value today of the project. 03_ch03_berk.indd 84 Online Practice
Study Plan 3.2 competitive market,
Valuation Principle, p. 71 MyFinanceLab
Study Plan 3.3...
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This note was uploaded on 02/07/2014 for the course MIS 304 taught by Professor Mejias during the Spring '07 term at Arizona.
- Spring '07