Chapter 2: Present Value, Portfolio Approach and Efficient Frontier

The below case study is based on the facts of the Indigo Company case. To successfully complete this case study, you should understand five capital budgeting concepts:

The discount rate is the rate used to calculate, or discount, the value of a dollar that will be received in the future into current dollars. The term ‘discount’ is used because a dollar received in the future is worth less than a dollar received today, after accounting for the future dollar’s opportunity cost, which is the interest that the dollar would have accumulated between today and the time it is actually received.