Preview

time value money

Better Essays
Open Document
Open Document
1053 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
time value money
Running head: STRATEGIC CORPORATE FINANCE

STRATEGIC CORPORATE FINANCE

TIME VALUE OF MONEY

The aim of this paper is to learn about time-value-of-money to make optimal decisions as manger must understand the relationship between a dollars present today and a dollar in the future.

Time value of money
Today’s financial managers often have to compare cash payments that occur on different dates. To make optimal decisions, the manager must understand the relationship between a dollar today [present value] and a dollar in the future [future value]. The time value of money is basically a measurement or perspective of an investment you might make while still considering its future decrease in value due to inflation. The time value of money allows us to understand what that inflation or decrease may become in the future or present. Most importantly, the time value of money concept allows us to decide whether it would be beneficial placing a sum of money into investment where it collects value from interest, or whether that same amount of money would be most valuable in the present due to inflation rates.

Understanding the concept of time value of money
It is very important for managers to understand the concept of time value of money because it reminds them that any amount of money is worth more when it is

STRATEGIC CORPORATE FINANCE

received sooner rather than later. Therefore, certain decisions need to be made based on the company’s needs and capabilities. Managers have to keep in mind that a particular amount of money considered today has a different buying power than that same amount of money would have in the future. The value of that money changes due to two factors: earned interest and inflation (Study finance, 2013, Par. 1). These are both considered when organizations make decisions concerning the time value of money. Prior to making decisions, measurements must be made including determining the
Continue Reading
View Writing Issues

You May Also Find These Documents Helpful

  • Satisfactory Essays

    Time Value of Money
    • 339 Words
    • 2 Pages

    Time Value of Money

    |Why is time such an important factor in |Time is important because in the long run you end up paying more in interest. |…

    • 339 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Satisfactory Essays

    Week 2 Assignment Mat 205
    • 360 Words
    • 2 Pages

    Week 2 Assignment Mat 205

    With the concept of this function, doubling time for an investment in use, a person can now safely and accurately predict the amount of time for growth in their investments. Within this global economic down turn, knowing and planning a financially secure future has become important for anyone in the general society. If more people were able to use this concept of doubling time for an investment, the…

    • 360 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Satisfactory Essays

    The Time Value of Money
    • 264 Words
    • 1 Page

    The Time Value of Money

    When it comes to understanding the difference between finances today and finances in the future, it is important to understand Time Value of Money. The Time Value of Money shows that money available now and the same amount in the future can be different. This is based on the possibility to earn money on interest, any amount of cash now is worth more, sooner than later. This gives the company more time to grow the cash rather than waiting for it.…

    • 264 Words
    • 1 Page
    Satisfactory Essays
    Read More
  • Better Essays

    Guillermo Furniture Capital Budget Recommendation
    • 1083 Words
    • 5 Pages

    Guillermo Furniture Capital Budget Recommendation

    Time value of money is necessary when comparing possible business investments that have different costs, cash flows, and service lives. Processing a discounted cash flow technique such as the net present value method allows a business to consider the possible cash inflows, cash outflows and the necessary rate of return on the investment before it is considered feasible. When the required rate of return is calculated it changes the discount rate that is used when calculating the net present value of the investment (Edmonds, 2007).…

    • 1083 Words
    • 5 Pages
    Better Essays
    Read More
  • Good Essays

    Finance 571
    • 754 Words
    • 4 Pages

    Finance 571

    Present values is defined as the value on a given date of a future payment or serious of payments discounted to reflect the time value of money and other related factors such as investment risk. Present value depends on both the expected cash follows and the cost of capital. The increase and decrease of present value depends on both elements. For instance, if the cost of capital increases, the present value will decrease even though the expected cash flow does not change. In the similar manner, present value will increase when expected cash flow increases even when the cost of capital has not changed. There are also situations when present value remains constant when there are changes in the expected cash flows and cost of capital (required return). Therefore, when the changes exactly offset, it…

    • 754 Words
    • 4 Pages
    Good Essays
    Read More
  • Satisfactory Essays

    Present Value/ Future Value
    • 475 Words
    • 2 Pages

    Present Value/ Future Value

    Present value is where the value on a set date of a future payment is discounted to reflect the time value of money and other factors. This can also apply to a series of future payments. Present value calculations are commonly utilized in business and economics to provide a way to compare cash flows at different times. Present value can be described as the current worth of a future sum of money or stream of cash flows given a specified rate of return. (http://www.getobjects.com) Future cash flows are discounted at the discount rate. The higher the discounted rate, the lower the present value of the future cash flows. Determining what the appropriate discount rate is, is important to correctly place value future cash flows.…

    • 475 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Satisfactory Essays

    Time Value of Money
    • 462 Words
    • 2 Pages

    Time Value of Money

    | |certain financial calculations, described later, to estimate what effect time might have on your money. |…

    • 462 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Satisfactory Essays

    BUS 650 Week 4 DQs
    • 539 Words
    • 3 Pages

    BUS 650 Week 4 DQs

    Examine the manner in which financial managers use an opportunity cost rate in discounted cash flow analysis, and determine its position on a timeline. Propose a strategic method in which financial managers can use this rate to evaluate all potential investments.…

    • 539 Words
    • 3 Pages
    Satisfactory Essays
    Read More
  • Satisfactory Essays

    Hrm/531 Week 1
    • 774 Words
    • 4 Pages

    Hrm/531 Week 1

    It is important for managers to be familiar with time value of money concepts because:…

    • 774 Words
    • 4 Pages
    Satisfactory Essays
    Read More
  • Good Essays

    Time Value of Money
    • 570 Words
    • 3 Pages

    Time Value of Money

    Why is the time value of money concept important? In what quantitative decisions might the time value of money be used? How do you apply the time value of money concept to make decisions in your personal life?…

    • 570 Words
    • 3 Pages
    Good Essays
    Read More
  • Good Essays

    Time Value of Money Simulation
    • 579 Words
    • 3 Pages

    Time Value of Money Simulation

    Aside from NPV and IRR, companies also use the payback period to evaluate possible investments. The payback period estimates the length of time required to recover the cost of an investment and addresses how desirable an investment is over the long-term. The payback method does have disadvantages in that it ignores time value of money principles and fails to recognize the profitability and risk of an investment. “Because of these reasons, other methods of capital budgeting like net present value and internal rate of return are generally preferred” (Answers Corporation, 2007).…

    • 579 Words
    • 3 Pages
    Good Essays
    Read More
  • Satisfactory Essays

    Tco Essay Question
    • 884 Words
    • 4 Pages

    Tco Essay Question

    Money has value because people believe that they will be able to exchange their money for goods and services at a future date or time. This concept is based upon a dollar in the hand is worth more than a dollar in the future. But when investing it is the amount an investment is worth after one or more periods is the future value of the money. So money means different things depending on the concept that it is being thought of at the time.…

    • 884 Words
    • 4 Pages
    Satisfactory Essays
    Read More
  • Satisfactory Essays

    What Is Shared Decision-Making?
    • 509 Words
    • 3 Pages

    What Is Shared Decision-Making?

    The time value of money is the increase on a value of money because of the interest earned on it.…

    • 509 Words
    • 3 Pages
    Satisfactory Essays
    Read More
  • Good Essays

    Acc 421 Week 5 Reflection
    • 864 Words
    • 4 Pages

    Acc 421 Week 5 Reflection

    In conclusion time value of money is not only important within the accounting industry but is also widely used within every facet of accounting. Businesses must understand how interest is computed either simple interest or compounded. Business must also understand the difference between future and present value of money. By understanding these concepts of time value of money, the business can make the best decisions…

    • 864 Words
    • 4 Pages
    Good Essays
    Read More
  • Best Essays

    Concept of Present Value
    • 1264 Words
    • 6 Pages

    Concept of Present Value

    The importance of concept of present value to the world of corporate finance is that present value calculations are widely used in business and economics to provide a means to compare cash flows at different times. Present Value’s definition and simplistic formula used for normal purchases, the concept’s importance to corporate finance and why present value is the very first topic taught in finance classes explain that present value is an essential knowledgeable tool to ensure we make the best decisions with our money.…

    • 1264 Words
    • 6 Pages
    Best Essays
    Read More

Related Topics