Principles of Managerial Accounting · free preview
The Time Value of Money, Present and Future Values
Money today is worth more than the same amount later, and present value calculations discount future cash flows at a rate that reflects the cost of capital, converting tomorrow's dollars into today's decisions.
1. Why timing prices money
Why timing prices money
2. Present value of a single amount
Present value of a single amount
3. Annuities, equal flows across years
Annuities, equal flows across years
4. Applying present value to projects
Applying present value to projects
5. Time value reason
Why is money today worth more than the same amount in the future?
6. Single amount present value
Compute the present value of 50,000 dollars received in three years at a 10 percent discount rate, rounded to the nearest dollar.
7. Annuity present value
A five-year annuity of 30,000 dollars is discounted at 10 percent with a factor of about 3.7908. Compute the present value.
8. Discount rate meaning
In capital budgeting, what does the discount rate represent?
9. Discounting direction
Present value ____ future cash flows back to today at the discount rate. One word.
10. Equal flows term
A series of equal annual cash flows is called an ____. One word.
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