It will become clear in chapters 6 and 7 that the

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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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This document was uploaded on 03/03/2014 for the course MBA BMMF at Open University Malaysia.

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