Why is the present value important for understanding capital budgeting? Which is the best present value method and why?
Present value is the future value being discounted by an appropriated capitalization rate. The value of sum of money received today is more than its value received after some time.
In other words present worth of rupee received after some time will be less than the rupee received today. This is because of time value of money. The investor has time preference of money because he has reinvestment opportunities for funds, which are received early.
The present value of a future cash flow is the nominal amount of money to change hands at some future date, discounted to account for the time value of money. A given amount of money is always more valuable sooner than later since this enables one to take advantage of investment opportunities.
1)What's the present value of a. $9,000 in 7 years at 8 percent? Present value= 5251.41
P= present value, F= Future value r= rate of interest n= ...
The solution examines present value and capital budgeting.