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## BA 215 Time Value of Money

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**BA 215Time Value of Money**• A dollar today is worth more than a dollar one year from now. • The reason for this is that money is an asset that can be invested. It will then generate returns over time. • This has nothing to do with inflation. • The discount rate is a measure of the time value of money.**Time Value of Money**• Possible measures of the discount rate • Cost of Capital; equity, debt, or a weighted average. • Cost of Debt • Interest rate on borrowing • Cost of Equity • This is difficult to measure • The Opportunity Cost of Investment • This is another measure of the cost of capital • Hurdle rates • Rules of thumb for investment decisions**Net Present Value**Table 1 (p. 267) Number of Periods9%10%12% 1 .917 .909 .893 2 .842 .826 .797 3 .772 .751 .712 4 .708 .683 .636 5 .650 .621 .567 = 0.751**Net Present Value**Table 1 Table 2 Number of Periods9%10%12%10% 1 .917 .909 .893 0.909 2 .842 .826 .797 1.736 3 .772 .751 .712 2.487 4 .708 .683 .636 3.170 5 .650 .621 .567 3.791**Net Present Value**Table 1 Table 2 Number of Periods9%10%12%10% 1 .917 .909 .893 0.909 2 .842 .826 .797 1.736 3 .772 .751 .712 2.487 2.486