From the course: Corporate Finance Foundations

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Capital budgeting overview

Capital budgeting overview

From the course: Corporate Finance Foundations

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Capital budgeting overview

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- I have here a special little machine. - Okay, well what does it do? - It creates money. - Okay, money. How much money? - 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. - Are you sure this is legal? - Absolutely. Now the question is, how much would you pay me to buy this dollar bill machine? - It's a dollar a year. How long is it going to last? - Well, that there is the good news. This little machine is guaranteed to last 1 billion years. - B-Billion? - In its useful lifetime, this machine will produce a total of $1 billion. - A billion dollars, that's impressive. - So how much are you going to pay me for this billion dollar machine? Will you pay me a billion dollars for it? - No. No. - Why not? You will completely recover your billion dollar investment over the life of this machine. You pay me a billion dollars for it now, and you will eventually get your entire $1…

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