If an individual's cost of

capital were 6%, he/she would prefer to receive $110 at the end of one year

rather than $100 right now. 

The present value of a

positive future inflow can become negative as discount rates become higher and

higher. 

Discounted at 10%, $1000

received at the end of each year for three years is worth less than $2,700

received today. 

When adjusting for

semi-annual compounding of an annuity, the adjustments include multiplying the

periods and annuity by 2. 

An annuity is a series of

consecutive payments of equal amount. 

In evaluating capital

investment projects, current outlays must be judged against the current value

of future benefits. 

 The time value of

money concept is fundamental to the analysis of cash inflow and outflow

decisions covering periods of over one year. 

 Compounding refers

to the growth process that turns $1 today into a greater value several periods

in the future. 

 The time value of

money is not a useful concept in determining the value of a bond or in capital

investment decisions. 

 Discounting refers

to the growth process that turns $1 today into a greater value several periods

in the future.