June 23, 2011
Corporate Finance Roundtable - Life's Little NPVs
Posted by Karl Okamoto

A few years ago I shared with Glom readers an exercise I use to expose law students to the concept of present value. Given the current state of affairs, I guess I should try and get a slot for this talk during Accepted Student’s Day. But whatever the true cost-benefit calculus of a legal education may be, one concept every lawyer should leave school equipped with is present value.

It’s simple for me.  If you do not understand deep down in your soul how it is that a dollar today is worth more than a dollar tomorrow, you cannot intelligently take out a mortgage, plan for your retirement, settle a case or, yes, negotiate an earn out provision. The mistake law schools make is that we tend to teach present value in the context of talking about earn outs or debentures or other such esoterica.  We should be talking about life's little NPVs from day one of orientation (or as I said above maybe even earlier).

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