Decision making by individuals and firms - how to make decisions involving Time: Understanding present value

4 important questions on Decision making by individuals and firms - how to make decisions involving Time: Understanding present value

What is the basic rule in deciding whether or not to undertake a prject?

the basic rule in deciding whether or not to undertake a prject is to compare the benefits of the project with its costs, both the explpicit and the imlpicit
then choose the course for the highest economic profit

Why use present value, when making decsisions when time is a factor? How about projects that occure over time?

Because it allows yout to convert costs an/or benefits that arrive in the future into a value today.
we can also compare projects that occur overtime by comparing values today?

How do we determine how much we need today in order to figure out how much we will get one year from now? How do we define it?

We will need the interest rate,
that is the price charged for borrowin money expressed as the percentage of the amount borrowed
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How can we define the Present value of X

It can be defined as the amount oof money needed todays in order to recieve X in the future given the intereset rate?

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