Professional Documents
Culture Documents
By
Karl E. Case,
Ray C. Fair &
Sharon M. Oster
2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
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CHAPTER 11 Input Demand: The Capital Market and the Investment Decision
2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
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11
Input Demand:
The Capital Market and
the Investment Decision
Prepared by:
Fernando & Yvonn Quijano
2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
CHAPTER 11 Input Demand: The Capital Market and the Investment Decision
Input Demand:
The Capital Market and
the Investment Decision
11
CHAPTER OUTLINE
Capital, Investment, and
Depreciation
Capital
Investment and Depreciation
The Capital Market
Capital Income: Interest and Profits
Financial Markets in Action
Mortgages and the Mortgage Market
Capital Accumulation and Allocation
The Demand for New Capital and the
Investment Decision
Forming Expectations
Comparing Costs and Expected Return
A Final Word on Capital
Appendix: Calculating Present
Value
2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
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CHAPTER 11 Input Demand: The Capital Market and the Investment Decision
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CHAPTER 11 Input Demand: The Capital Market and the Investment Decision
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CHAPTER 11 Input Demand: The Capital Market and the Investment Decision
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CHAPTER 11 Input Demand: The Capital Market and the Investment Decision
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CHAPTER 11 Input Demand: The Capital Market and the Investment Decision
2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
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CHAPTER 11 Input Demand: The Capital Market and the Investment Decision
Nonresidential structures
Equipment and software
Change in private inventories
Residential structures
Total gross private investment
depreciation
Net investment =
gross investment depreciation
Billions of
Current
Dollars
As a Percentage
of Total Gross
Investment
As a
Percentage of
GDP
464.5
1004.5
5.1
664.8
2139.0
1683.4
21.7
47.0
0.2
31.1
100.0
78.7
3.4
7.3
0
4.8
15.5
12.2
455.6
21.3
3.3
2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
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CHAPTER 11 Input Demand: The Capital Market and the Investment Decision
2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
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CHAPTER 11 Input Demand: The Capital Market and the Investment Decision
2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
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CHAPTER 11 Input Demand: The Capital Market and the Investment Decision
2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
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CHAPTER 11 Input Demand: The Capital Market and the Investment Decision
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CHAPTER 11 Input Demand: The Capital Market and the Investment Decision
FIGURE 11.2 Financial Markets Link Household Saving and Investment by Firms
2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
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CHAPTER 11 Input Demand: The Capital Market and the Investment Decision
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CHAPTER 11 Input Demand: The Capital Market and the Investment Decision
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CHAPTER 11 Input Demand: The Capital Market and the Investment Decision
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CHAPTER 11 Input Demand: The Capital Market and the Investment Decision
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CHAPTER 11 Input Demand: The Capital Market and the Investment Decision
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CHAPTER 11 Input Demand: The Capital Market and the Investment Decision
2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
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CHAPTER 11 Input Demand: The Capital Market and the Investment Decision
Project
A. New computer network
(1)
Total Investment
(Dollars)
(2)
Expected Rate Of
Return (Percent)
400,000
25
2,600,000
20
1,500,000
15
100,000
12
400,000
10
1,000,000
100,000
F. Advertising campaign
G. Employee cafeteria
2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
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CHAPTER 11 Input Demand: The Capital Market and the Investment Decision
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CHAPTER 11 Input Demand: The Capital Market and the Investment Decision
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CHAPTER 11 Input Demand: The Capital Market and the Investment Decision
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CHAPTER 11 Input Demand: The Capital Market and the Investment Decision
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CHAPTER 11 Input Demand: The Capital Market and the Investment Decision
bond
human capital
capital
intangible capital
capital income
interest
capital market
interest rate
capital stock
investment
depreciation
profit
2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
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CHAPTER 11 Input Demand: The Capital Market and the Investment Decision
APPENDIX
CALCULATING PRESENT VALUE
PRESENT VALUE
$100
Year 2
100
Year 3
400
Year 4
500
Year 5
500
1,600
2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
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CHAPTER 11 Input Demand: The Capital Market and the Investment Decision
APPENDIX
CALCULATING PRESENT VALUE
PRESENT VALUE
R
PV
t
(1 r )
2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
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CHAPTER 11 Input Demand: The Capital Market and the Investment Decision
APPENDIX
CALCULATING PRESENT VALUE
PRESENT VALUE
DIVIDED BY
(1 + r)t
Year 1
100
(1.1)
90.91
Year 2
100
(1.1)2
82.65
Year 3
400
(1.1)3
300.53
Year 4
500
(1.1)4
341.51
Year 5
500
(1.1)5
310.46
END OF
PRESENT
VALUE ($)
1,126.06
2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
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CHAPTER 11 Input Demand: The Capital Market and the Investment Decision
APPENDIX
CALCULATING PRESENT VALUE
PRESENT VALUE
2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
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CHAPTER 11 Input Demand: The Capital Market and the Investment Decision
APPENDIX
CALCULATING PRESENT VALUE
LOWER INTEREST RATES, HIGHER PRESENT VALUES
DIVIDED BY
(1 + r)t
Year 1
100
(1.05)
95.24
Year 2
100
(1.05)2
90.70
Year 3
400
(1.05)3
345.54
Year 4
500
(1.05)4
411.35
Year 5
500
(1.05)5
391.76
END OF
PRESENT
VALUE ($)
1,334.59
2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
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CHAPTER 11 Input Demand: The Capital Market and the Investment Decision
APPENDIX
CALCULATING PRESENT VALUE
LOWER INTEREST RATES, HIGHER PRESENT VALUES
2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
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CHAPTER 11 Input Demand: The Capital Market and the Investment Decision
R
PV
(1 r ) t
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