2 DECISIONS, DECISIONS…
When you have studied this chapter you should be able to:
- define ‘cash flow’ and explain its importance in financial decision-making;
- build a simple financial case from a given set of data;
- explain the importance of determining which cash flows are relevant to the investment being evaluated;
- describe the concept known as ‘discounted cash flow’ and apply it to a simple financial case;
- explain what is meant by ‘cost of money’ and ‘opportunity cost’;
- describe the relationship between interest rates and inflation, and explain its relevance to financial decision-making.
WHAT IS CASH FLOW?
From time to time we do what we call back-of-envelope calculations to test whether a particular idea is worth pursuing or ...