This preview shows page 1. Sign up to view the full content.
Unformatted text preview: the present value technique uses discounting to find the present value of each cash flow at time zero
and then sums these values to find the investment’s value today. Application of
this approach is depicted below the time line in Figure 4.2.
The meaning and mechanics of compounding to find future value and of discounting to find present value are covered in this chapter. Although future value
and present value result in the same decisions, financial managers—because they
make decisions at time zero—tend to rely primarily on present value techniques. Computational Tools
Time-consuming calculations are often involved in finding future and present values. Although you should understand the concepts and mathematics underlying
these calculations, the application of time value techniques can be streamlined.
We focus on the use of financial tables, hand-held financial calculators, and computers and spreadsheets as aids in computation. Financial Tables
Financial tables include various future and present value interest factors that simplify time value calculations. The valu...
View Full Document