Introduction To Valuation Flashcards
Time value of money
Money can be invested to earn interest and generate more money
Interest earnings
Amount earned by investor’s money that she places in an investment or project
Purchasing power
Rate of increase in prices over a given period of time
Future Value
Amount an investment will grow to over some period of time at some given interest rste
( 1 + r )^t
Compounding
The process of accumulating interest an investment over time to earn more interest
Interest on interest
Simple interest
Interest isn’t reinvested and is earned each period on the original principal
Discounting
Estimating the present value of a future payment or a series of cash flows that are to be received in the future
Discount rate
The rate used to calculate the present value if future cash flows that are to be received in the future
Discount rate
Rate used to calculate the present value of future cash flows
Net oresent value
Accept investments that have positive net values
Rate of return rule
Accept investments that offer rates of return in excess of their opportunity cost of capital
The rule kf 72
72 / r%
How long it takes to double money approximately
