From the course: Accounting Foundations: Making Business Decisions Using IRR and NPV
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Introducing capital budgeting
From the course: Accounting Foundations: Making Business Decisions Using IRR and NPV
Introducing capital budgeting
- I have here a special little machine. - Okay, well what does it do? - It creates money. - All right, money, money, how much money? - Well, this little machine here creates exactly one US dollar per year, completely legal. The dollar bill pops out of this hole at midnight on December 31st, every year. - Wait a second, are you sure this is legal? - Absolutely. Now the question is, how much would you pay me to buy this dollar bill machine? - Okay, well, how long is it going to last? - Well, that's good news. This little machine is guaranteed to last one billion years. Yep, in its useful life, this machine will produce a total of $1 billion. - $1 billion, wow. - Exactly, so how much will you pay me for this billion dollar machine? Will you pay me a billion dollars for it? - No. - Why not? You'll completely recover your investment over the life of the machine. You pay me a billion dollars now, this machine will…
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