CHAPTER 2

Time Value of Money

LEARNING OBJECTIVES

  • Explain the logic of time preference or time value of money.
  • Calculate future or compound value of a single cash flow, uneven cash flow and annuity.
  • Determine the present value of a single cash flow, uneven cash flow, annuity and perpetuity.
  • Describe the effects of interest changes on future and present value.
  • Explain and calculate sinking fund and capital recovery.
  • Calculate the future and present value of annuity due.
  • Measure the effect of multi-period compounding on future and present value.
  • Describe and determine 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 ...

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