9780321818171_berk_ch03

This decision will increase rims value if these

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Unformatted text preview: rwise switch to iPhones after purchasing iPads. This decision will increase RIM’s value if these benefits outweigh the costs. More generally, a decision is good for the firm’s investors if it increases the firm’s value by providing benefits whose value exceeds the costs. But comparing costs and benefits is often complicated because they occur at different points in time, or are in different currencies, or have different risks associated with them. To make a valid comparison, we must use the tools of finance to express all costs and benefits in common terms. In this chapter, we introduce the central concept of finance, and the unifying theme of this book, the Valuation Principle. The Valuation Principle states that we can use current market prices to determine the value today of the different costs and benefits associated with a decision. The Valuation Principle allows us to apply the concept of net present value (NPV ) to compare the costs and benefits of a project in terms of a common unit—namely, dollars today. We will then be able to evaluate a decision by answering this question: Does the cash value toda...
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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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