For now we will ignore transactions costs and discuss

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Unformatted text preview: hat are incurred when buying or selling silver, in addition to the market price. For now, we will ignore transactions costs and discuss their effect later. 03_ch03_berk.indd 03_ch03_berk.indd 69 12/15/11 8:08 PM 70 Part 2 Interest Rates and Valuing Cash Flows Concept Check 3. How do we determine whether a decision increases the value of the firm? 4. When costs and benefits are in different units or goods, how can we compare them? 3.3 Valuation Principle competitive market A market in which a good can be bought and sold at the same price. E X A MPLE 3 .2 Competitive Market Prices Determine Value In the previous examples, the right decisions for the firms were clear because the costs and benefits were easy to evaluate and compare. They were easy to evaluate because we were able to use current market prices to convert them into equivalent cash values. Once we can express costs and benefits in terms of “cash today,” it is a straightforward process to compare them and determine whether the decision will increase the firm’s value. Note that in both examples we...
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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 University of Arizona- Tucson.

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