Concepts of time value of money
The concept of time value of money lies in the argument that a dollar today is worth more than a dollar in the future. This is mainly because money loses value over time due to many different factors. One of the factors that affect the value of money is inflation. Interest rate is another factor that affects the value of money. Fisher (2006) argues that inflation has an effect on the value of money because it reduces the buying power of money.
Concepts about time value of money tries to put into consideration the financial decisions by enabling financial analysts to convert the different cash flows from the different time periods into present or future values.
Present value concept
Present value is one of the concepts of time value of money…
3. If we were to use the same example and change the time of the deposits to the beginning of the year verse the end of the year, in 17 years our new total would be $127,173.85. $11,033.85 more would be earned by making it at the beginning of the year, this increase is due to the money being in longer therefore earning interest longer.
To Solve I have used the simplified equation for solving for the Future Value of an Annuity Due. An annuity due is when payments/deposits are made at the…
The Internal Rate of Return
According to Berk & DeMarzo (2016), the internal rate of return abbreviated as IRR and also known as the yield on investment refers to the discount rate that equates the NPV (net present value) of the proposed investment to zero (0). That is, the future cash flows of the investment plan equal the initial capital outlay of the project. The technique analyzes an investment plan by comparing the yield on investment to the minimum hurdle rate of a company. Like the NPV…
1.) Yield to Maturity =├ ( (Face Value)/(Current Price of Bond)┤)^(1/(Years to Maturity))-1
a) r =├ ( $1000/$800┤)^(1/1)-1= 0.25 = 25%
b) r =├ ( $100/$950┤)^(1/1)-1= 0.053 = 5.3%
c) r =├ ( $1000/$1000┤)^(1/1)-1=0 = 0%
The yield to maturity may change over the years depending on the changes in the overall demand for bonds in the market. If the investors become more willing to hold bonds due to economic uncertainty, then the bond prices will rise which will reduce the yield (Ross, 2016). In this…
The premise of payback methods starts with how long it takes to recover the amount of money put into the project. It’s overall better for the payback period to be shorter in the long run. There is payback methods listed for four alternative projects related. For instance, in each project the initial outlay is $8,000. Therefore, by the end of 2015 projects one and two have recovered the initial $8,000 investment, (Finkler, S.A., Ward, D.M. & Calabrese, I.D., 2013). As a result, a payback period…
Running head: The Time Value of Money and Financial Statement Analysis
The Time Value of Money and Financial Statement Analysis
Kenosha D. Coston
Module 1 Case Assignment
Conducting Financial Ratio Analysis?
FIN 501 Strategic Corporation Finance
Dr. William L. Anderson
2 May 2016
It is essential to evaluate long-term projects by comparing cash flows accruing at different points in time. The present and future value concept converts streams of…
operations using debt and equity sources?” (Coo, 2024, p. 373). It helps the company decide which projects will be profitable and when a return can be expected.
Adjusted Present Value (APV) and Net Present Value (NPV)
Net Present Value (NPV) is a common technique used in capital budgeting decisions. NPV measures how profitable is a proposed project. APV is NPV adjusted for the “interest and tax advantages of leveraging debt if equity is the only source of financing”…
are other disadvantages. In the face of a recession, I would have the potential to lose significant amounts of money from having only stocks left in my portfolio, whereas my savings bonds are backed by the US government, making them a reliable and “low-risk savings product” (Treasury Direct, 2016, para. 1). This makes selling a combination of both stocks and bonds appear to be the best option, not only because of the risks involved, but also for the purposes of maintaining diversity within my…
analysis because by the time I will retire I do not believe that Social Security will still exist. Therefore, my answer for Step 3 is 0.
Step 4: The job I currently have does not offer a DB pension; therefore, my answer for Step 4 is 0.
Step 5: I have a Traditional IRA, it is currently worth $11,935.35. My IRA is invested…
problem to health care managers because very crucial decisions must be made that significantly affect the business’s operation and financial standing for a long time. Capital investment must go through an analysis to fully explore any potential expenditures on the equipment, land even the infrastructure…