9780321818171_berk_ch03

34 the time value of money and interest rates the

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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 value. ◗ 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 Opportunities MyFinanceLab Study Plan 3.2 competitive market, p. 70 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.

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