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Managerial Economics and Strategy, 2/e
book

Managerial Economics and Strategy, 2/e

by Jeffrey M. Perloff, James A. Brander
February 2016
Beginner to intermediate
500 pages
33h 40m
English
Pearson
Content preview from Managerial Economics and Strategy, 2/e

Appendix 7A Interest Rates, Present Value, and Future Value

To make decisions based on cash flows such as costs and revenues over time, managers compare current and future cash flows using interest rates.

The interest rate, i, connects the value of money you invest today, the present value, PV, and the amount that you will be repaid later, the future value, FV. For example, if you put $100 in the bank today, your present value is $100. If the annual interest rate is i=5%=0.05, [&i|=|5|perc||=|0.05,&] then a year from now the bank will return your original $100 and give you an additional interest payment of $5=0.05×100, [&|doll|5|=|0.05|multi|100,&] so that your future value is $105 one year from now. More generally, if you invest PV

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Publisher Resources

ISBN: 9780134472553