Health Finance

In: Business and Management

Submitted By mstone17
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Chapter 9 Notes: * Intro * The value of any asset (stocks, equipment) is based on future cash flows * The dollar to be received in the future is worth less than the current dollar, because the current dollar can be invested into an interest bearing account and be worth more in the future vs. the future dollar * time value analysis: is the process of assigning appropriate values to cash flows that occur at different points in time * Time lines * Starts with 0 * If you invest 100 into a business it would be shown as -100 at 0 because you have cash flowing out * Time value of a lump sum (compounding) * The process of going from todays valyes (present values (PV)) to future values is called compounding. * Lump sum compounding starts with a single starting amount. * Terms used in analysis: * PV=beginning amount * I=interest rate (in decimal) * INT=dollars of interest earning uring a year, which equals the beginningaount multipled by the interst rate (INT=PV*I) * FVn=Future value, or ending amount, of the account at the end of N years. (FVn=PV+INT) or (FVn=PV +(PV*I) or (PV*(1+i)^X) * N=number of years involved in the analysis * Opportunity costs * Essentially what you give up to get something else (ex. Invest in stocks with tesla, then u give up the opportunity to invest in apple) * The opportunity cost (discount rate) applied to investment cas flows is the rate that could be earned on alternative investnments of similar risks * If an investment can be obtained for less than its present value, it will earn more than its opportunity cost rate and hence is a good investment, If the cost of the investment is greater than its present value, it will earn less tan the opportunity cost rate and hence is a bad investment…...

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