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Part: III Investment Decisions > Examining Decision Criteria for Business Case ...

Chapter 12. Examining Decision Criteria for Business Case Analysis

Chapter 11, “Examining a Business Case: Investment,” looked at the relevant facts surrounding a business case decision. If you worked your way through the case study, you constructed a pro forma income statement and a pro forma cash flow statement. These statements help you to describe the decision quantitatively, but that's far from the end of the process.

An important criterion to use in the evaluation of an income or cash flow statement is the discount factor. The term discounting refers to the estimation of the present value of future cash flows. For example, every dollar you own today has a different value in the future. If you deposit $100 in a savings account that yields 5% annually, that $100 will be worth $105 in one year. Its future value one year from now is $105.


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