This chapter introduces the concept of present value and shows why a firm should maximize the market value of the stockholders' stake in it. It describes the mechanics of calculating present values of lump sum amounts, perpetuities, annuities, growing perpetuities, growing annuities and unequal cash flows. Other related topics like simple interest, frequent compounding, continuous compounding, and nominal and effective interest rates are discussed. The net present value rule and the rate of return rule are explained in great detail.
