CHAPTER 3
Time Value of Money
LEARNING OBJECTIVES
- Understand what gives money its time value
- Explain the methods of calculating present and future values
- Calculate sinking fund and capital recovery
- Compute present value and future value when interest is compounded multiple times in a year
- Highlight the use of present value technique (discounting) in financial decisions
- Introduce the concept of internal rate of return
INTRODUCTION
Most financial decisions, such as the purchase of assets or procurement of funds, affect the firm's cash flows in different time periods. For example, if a fixed asset is purchased, it will require an immediate cash outlay and will generate cash inflows during many future periods. Similarly, if the firm borrows ...
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