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Unformatted text preview: anagers and investors use
time-value-of-money techniques when assessing the
value of the expected cash flow streams associated
with investment alternatives. Alternatives can be assessed by either compounding to find future value or
discounting to find present value. Because they are
at time zero when making decisions, financial manLG1 agers rely primarily on present value techniques.
Financial tables, financial calculators, and computers and spreadsheets can streamline the application
of time value techniques. The cash flow of a firm
can be described by its pattern—single amount, annuity, or mixed stream.
LG2 Understand the concepts of future and present
value, their calculation for single amounts, and CHAPTER 4 the relationship of present value to future value.
Future value relies on compound interest to measure future amounts: The initial principal or deposit
in one period, along with the interest earned on it,
becomes the beginning principal of the following
period. The present value of a future amount is the
amount of money today that is equivalent to the...
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