Chapter 16 Flashcards
The value of money invested today at some point in the future
Future value
The expectation that money will increase over time.
Time value of money
Earning interest on previously earned interest
Compounding
The current value of a future cash payment or receipt
Present value
The relationship of money earned compared to the money invested
Rate of return
The cash receipts and cash payments of a company
Cash flows
The difference between cash receipts and cash payments
Net cash flow
The difference between the discounted cash flows and the investment
Net present value
A series of equal cash flows
Annuity
An amount invested at a given interest rate that supports the payments of an annuity.
Present value of an annuity
When deciding wether to purchase a plant asset, manager should purchase the assets if future profits exceed the cost
True
The value of a dollar earned several years from now should be compared directly to the cost of the asset today
False
When comparing future profits to today’s costs, managers must consider the time value of money
True
When calculating the future value of an investment, the interests earned each year is country by multiplying the current investment value by the interest rate
True
The annual interest earned increases each year because of compounding interest
True
