Time Value College Essays Samples For Students

introduction
Time value of money is an important concept of finance and financial management. It has been said that the present consumption reveals more value than a future consumption and it is because of the fact that consumers have two options; either to consume it right away or forego it to avail it in future by investing the present amount (Houston, and Brigham, 2009).
This report defines and highlights the importance of time value of money and also discusses the importance of time value of money for the financial managers. The report also calculates present value of money ...

Article 1: The case for minimizing risk in your bond holdings by William Bernstein

There is always a trade-off between risk and return. Investors are rational and risk-averse hence, they require additional returns when the risk involved in any investment is high. In this article, William Bernstein explains how investors can reduce the risk in their investments in bonds without necessarily interfering with the expected returns on the bonds. One of the risks affecting bondholders is the interest risk. Changes in interest rates affect the return on bonds. When interest rates rise, bondholders lose since the prices of bonds fall. This is because the bond will be paying a lower coupon interest compared ...

Answer 1)

Time Value of Money is an important concept in the world of finance. As per the principle, the value of money received today is more than the same amount of money to be received in some future date. In other words, as per the principle of Time Value of Money, money carries the power to earn interest. Thus, any amount of money is worth more the sooner it is received. For Instance, $100 invested at 10% rate of interest for 1 year will be $110 after the end of year. Similarly, if $100 is received after 1 year, this ...

[Your Full Name]

Introduction

The concept of corporate finance lies in time value of money and is often regarded as the foundation of the corporate strategy as well as the financial management. The concept of net present value is applied in a number of financial decisions and the time value of money is dependent on the same principle. Therefore, this paper will be focused on the importance of the time value of money based on the concept of net present value. This concept is clarified by using the example of bond valuation as mentioned in the question. However, this paper is ...

Saving v/s Investment

Although used interchangeably, the terms savings and investment differs significantly. Important to note, the term savings refers to short-period investment in highly liquid products that allow the depositor/investor to access money any time or with minimal hassle. Some of the saving based instruments available for the investors are saving account, certificate of deposits, checking accounts,et cetera. Another notable feature of saving is that the money deposited is insured by the Federal Deposit Insurance Corporation (FDIC). Therefore, a saving carries minimal risk as in any condition,i.e. even if the bank defaults, the deposit will be safeguard up to ...

Personal finance

Learning is a continuous experience that starts at birth. Although formal learning takes place within learning institutions, much of human learning is a product of experiences from life. Like in other areas of professional development, financially planning is a product of both formal and informal learning experiences. In this respect, multiple experiences throughout my life have shaped my financial planning skills. My learning experience with respect to financial planning is traceable to my days in college. Being in learning institutions calls for self-discipline and control with regard to financial. This offered the first and extremely important lessons with regard to financial planning. ...

Even though we may or may not notice, but the concept of time value of money surrounds us all the time in the form of compounding. The concept of time value of money asserts that the present value of a dollar received today is more than the one to be received in the future. In other words, money has the power of compounding and no rational person will forego his consumption without being compensated for it in the form of interest. For instance, if a person invest his funds in bonds, he is rewarded with fixed coupon payments on ...

Net Present Value

The Net Present Value is used in estimating the potential value of every project by applying the discounted cash flow valuation that requires an estimation of the size and time of all cash flows that increases from the project (Ehrhardt & Brigham, 2016). However, NPV is affected greatly by the discounting rate. Therefore, making a selection on the proper rate that is sometimes known as the hurdle rate is essential during decision making. Moreover, this should make a reflection on the riskiness of the investment because it is typically measured by the unpredictability of cash flows. Therefore, it must take ...

Time Value of Money:

Time value of money relates to the importance of having cash at hand today as opposed to the future. Mathematics of time value of money quantify the value of money be it in dollars, pounds or any other currency depending on the rate of return an investment earns. There are various reasons as to why cash at hand is preferable to future cash (Silver, 2011).
The availability of investment opportunities at present: Opportunities do come ones in a lifetime. If an investment opportunity were available now, cash that is at hand would be essential in making that investment. However, ...

Project 1 (Table 1 on page 462, n=1-4, r=16%)
Yr 1 $144,000 * 0.862069 = $124,138
Yr 2 $147,000 * 0.743163 = $109,245
Yr 3 $160,000 * 0.640658 = $102,505
Yr 4 $178,000 * 0.552291 = $98,308

PV of inflow of cash $434,196

Cost of Investment (400,000)
NPV $34,196
Project 2 (Table 1 on page 462, n=1-4, r=16%)
Yr 1 $204,000 * 0.862069 = $175,862
Yr 2 $199,000 * 0.743163 = $147,889
Yr 3 $114,000 * 0.640658 = $73,035
Yr 4 $112,000 * 0.552291 = $61,857

PV of inflow of cash $458,643

Cost of Investment (400,000)
NPV $ ...

There are different methods used in capital budgeting. They include the net present value, profitability index, internal rate of return and payback period. This research paper will evaluate the differences that exist between these methods basing the argument on the strengths and weaknesses of these methods.
The net present value method is used to determine whether a certain project should be invested or not. It is obtained by summing the present value of the future cashflows of a project. On the other hand, profitability compares the present value of the future cashflows to the initial capital outlay of a project in ...

Investment Proposal for Cengage Learning, Inc.

Executive Summary

Purpose of the Paper
The main purpose of the paper is to prepare an effective investment appraisal for Cengage Learning by using various financial management tools.

Overview of the Paper

The paper comprises of following material that can be seen in the overall paper.
Investment appraisal techniques for introducing new product line
Selection of two most common techniques
Importance of techniques through literature
Testing of Feasibility of new project
Interpretation and conclusion on the analysis
Techniques Used
Results
It is found from the above two analysis that the project is viable for the company and has potential to provide high return ...

Problem:

A company is considering two projects, Project A and Project B with different cash flows as disclosed in the table hereunder:
However, since the company has a limited budget, it can only invest in one of the project. Thus, the managers of the company take the help of capital budgeting techniques, NPV analysis and Payback Period.

NPV Analysis:

The NPV is the sum of the present values of all the expected incremental cash flows if a project is undertaken. The discount rate used is the firm’s cost of capital, adjusted for the risk level of the project. In other words, the ...

Business

Net present value is one of the most widely used financial methods for the investment appraisal. The first advantage of using the NPV method of investment appraisal is that it incorporates the time value of money. Moreover, the discount rate or cost of capital used in the calculation of NPV of any project is calculated after taking care of all the financial structure and tax adjustments of the business. This discounting factor also contains the risk and inflation adjustments which provide accurate time value of money. Another advantage of the NPV method of investment appraisal is that it uses ...

Re:

Anyone who needs to perform time value of money calculations
Definition
A financial calculator is an instrument used to perform time value of money calculations in the finance and business environment
The purpose of a calculator is to perform math calculations. If you press the “2” key, hit the “+” button, press the”2” key again and hit the “=” button, you will see the number 4 as the result. Of course we don’t need calculators for simple calculations like this. We need them for the more complicated ones that could take hours to do by hand, thus increasing ...

Criticisms of Payback and Simple Rate of Return Methods

Payback Period and Simple Rate of Return Methods are among the tools used in capital budget budgeting. Payback period measures the length of time to recoup an investment, while the simple rate of return method, also known as Accounting Rate of Return (ARR) provides the expected income for the entire life of a capital investment (Investopedia, 2014).

The formulas to calculate for these two methods are:

- Payback Period = Cost of Project / Annual Cash Inflows

Criterion: The project that has shorter payback period is deemed better.

- Simple Rate of Return= Average profit /Initial investment

Criterion: Choose the project with higher returns or exceeds the hurdle rate.

Although considered as the simplest method in appraising capital investments, one of the criticisms with the payback period method is it ignores benefits from ...

Introduction

In every investment decision, it is necessary to scrutinize the benefits and cost before venturing into it. An investor should evaluate the benefits he or she would get if they invested their capital in the project rather than depositing the cash in the bank to accumulate annual interest. A project manager is solely responsible to decide on behalf of his clients on the best project to invest from a pool of several and closely related benefits on behalf of his client. The key factors that the manager would consider are rate of return on investment, period it would take the ...

INTRODUCTION

Tantalizers Plc is a leading Fast Food company established in May 1997 with a promise to deliver full value for money to an increasingly discerning target audience. The company pioneered the integration of African menu into fast food operations.
In order to evaluate how tantalizers’ plc has improved in its financial performance in terms of profitability, efficiency and stability, its financial statement in 2008 and 2009 would be analyzed and interpreted using some basic financial ratios. Profitability, efficiency and financial risk ratios will be used to evaluate the company’s performance in 2008 and 2009 respectively.

Financial Ratios

Turnover Growth

Net profit ...

Alpha Group

Consolidated financial statement of financial position for the year ended 31st December, 2015.
Items £ (000) £ (000)
Long-assets 2014 2015
Investment property, fair value 2500 2500
Property, plant, $ equipment 4324 4818
Total long-term assets 6824 7318
Current assets
Cash 200 140
Cash equivalent 30 20
Trade receivables 1900 1200
Inventory 1000 1950
Dividends 100 190
Non-controlling interest share 120 150
Inventory, fair value cost to complete and sell 180 150
Total current assets 3530 3800
Total assets 10354 11118
Equity and liabilities
Share capital 1500 1250
Retained earnings 1910 1000
Profits for the year 1000 1250
Dividends payables 100 190
...

Product and Cost Allocation

“Luggage R Us” is a new luggage company that helps customers design, make and ship their own personalized travel luggage. The company offers four standard luggage sizes that can be used by individuals for business trips, couples on a romantic vacation, and even for a family of four. The four sizes are segregated into the carry-on, medium, large, and the extra-large (Samsonite, 2016). The standard size used for the carry-on is at 22”x14.5”x9.75”, which is within the maximum size limit for baggage for most airline companies (Samsonite, 2016).
Figure 1. Luggage sizes offered
However, most carry-on luggage ...

Introduction

We know that the money we are having in hand now is more valuable than the money collected later. This is due to the fact that we can make money right now by putting the money in business, purchasing something, selling it later like stocks or depositing in the bank to earn interest. But the future money is always less valuable. This is known as time value of money (TVM). Future money is always less valuable due to inflation. So how do we compare the value of money now and the value of money in the future. This is ...

Business Finance Finals

The situation presented in the situation with client one is the for a business to survive a proper cash flow should be in place. The behavior of the person involve would also be barrier or a good mark on how they handle their financial management. As this is noted in the study of (Almeida, Campellow and Weisbach. 2004) in which they captured that “two important areas of research in corporate finance are the effects of financial constraints on firm behavior and the manner in which firms perform financial management”. In the line of the different of profits and cash ...

- The beta estimates are reasonable. The beta coefficients of all the assets are less than one which, when compared to the market beta of one indicates that the price of the investment will be less volatile than the market. This is due to the fact that the betas of these investments are less than the market value which is taken as the benchmark value.

- The most important measure of risk in this situation is the calculation of Sharpe ratio. This is because this ratio measures the risk adjustment performance of the investment as opposed to standard deviation ...

NPV

NPV (the net present value) is used to calculate, and analyze how much is a project is useful also to find out the difference between the present value of cash inflows and the present value of cash outflows. Also, we should know that the NPV analysis is sensitive when we calculate the future cash inflows for the project's revenues. Simply the NPV method shows whether we should undertake a project or reject it; it is useful to make decisions and it is easy to use.
According to the primary investment rule, if the NPV is positive that means the project ...

The net present value of a project is simply the difference between the present value of future cash flows and the purchase price. Discounted cash flows are commonly measured by the NPV method, and are a standard method for calculating the time value of money. This measurement of time value of money is important when appraising long-term projects. Furthermore, the NPV aids in indicating the value the investment would create for the firm. A negative or positive cash flow is not the determinant while accepting a project. Calculated risk is the over powering factor when making a decision. NPV falls short in decision ...

Introduction

This report is about the evaluation of an attractiveness of one project of Wall-Mart using different methodologies and measures taking into account different theories. The main purpose of this investigation is determination of the advantages and disadvantages of the different methods and it is necessary to make a decision about investment in this Wall-Mart project using all computed values.

Present value is a parameter which reflects the present value of future cash flows that have been discounted. To calculate a present value it necessary to use the following formula:
Present Value=i=1nCFi1+ri,
where n is number of periods,
r ...

Finance - Investment appraisal

Finance - Investment Appraisal
Payback period for Option A:
Payback period for Option A = [2 + (90000/120000)] years
[2 + 0.75] years
2.75 years = 2 years and 270 days

Payback period for Option B:

The Payback period for Option A = [5 + (80000/430000)] years
[5 + 0.19] years
5.75 years = 2 years and 70 days

NPV and IRR for the option A:

NPV for option A = Sum of all cash inflows and outflows = +64280
IRR for option A = lower NPV% + (higher NPV % - lower NPV %)x ( lower NPV / Lower NPV – Higher NPV)
= 0.1 + (12% - 10%) x (86200 / 86200 – 64280)
= 0.1 + 0.07 = 0.107
= ...

Data Table: One (Values of horizontal distances and time)

This table provides the calculated horizontal distances (x) in (ft) and the time (t) in seconds. The time increment is 0.5 seconds. Horizontal distances are obtained using the formula x = v0xt. The initial horizontal distance is taken as 0.

Chart 1: Horizontal Distance against time Graph of x against t

This chart shows the relationship that exists between the horizontal distances (x) and the time (t). From the graph, it is evident that there is a positive linear relationship between the horizontal distances and the time. This indicates that the velocity is constant. Consequently, the horizontal acceleration does not change.
Figure 1: Graph of x against t

Data Table: 2(Values of Vertical distances and time)

This table provides ...

Part I: Review of background material

The first model is the capital asset pricing model. It describes the relationship which exists between risk and expected returns and it is applied is securities’ pricing. In this model, an investor should be compensated for both the risk and the time value of money. The risk free rate is the factor for the time value of money. It compensates all investors for their fund commitment for a certain period. According to CAPM, the expected return on a specific security or a portfolio is equivalent to the risk free rate and the risk premium added together. These are the issues which will ...

Inflation and Oil Prices

Inflation refers to persistent increase in the price level over time and is one of the most dangerous threats to an economy because if unchecked it will erode the purchasing power of a currency and if the monetary system of the country is destroyed, can ultimately force the individuals to adopt foreign currency.

There are two kinds of Inflation: Demand Pull and Cost Push Inflation.

Cost Push Inflation: A situation when inflation persists in the economy because of initial decrease in aggregate suppky caused by an increase in the real price of an important factor of production i.e wages and energy. Oil Crisis of 1970 is a suitable example of cost-push(supply shock ) ...

QUESTION 1;

Part A: Net Present Value calculation
Working capital will be regarded as the initial investment outlay which is £ 1 million. Discount rate used in calculating the net present value of the project is 7%. The internal rate of return will be hypothetically obtained with the aim of obtaining the break-even situation of the project.
All costs and expenses are treated as cash outflows which will reduce the cash inflow in the project i.e. the project’s sales revenue. The cash outflows from the entire project will be deducted from the project’s inflows so as to determine ...

Personal Finance

Personal Financial Plan
Introduction
A person’s financial success is determined by his ability to allocate and utilize his own financial resources. Planning is an integral part of every person’s future aspirations for a better life even retirement. However, financial planning is not as simple as outlining the current personal assets versus liabilities because similar to business financial planning it also considers both external and external environmental attributions. Internal factors vary from risk tolerance, projected financial situation, discipline, goals, spending, saving and investment patterns and consumption. On the other hand, external factors include social, legal, political, taxation ...

Opportunity cost is the next best alternative to the one chosen (Daly, 2010). The process of evaluating the opportunity cost and trade-offs between alternatives, and making a final purchase decision explains a few economic principles of Mankiw. Assuming that there are two concerts in town, ‘Hot Stuff’ and ‘Good Times Band’ and I need to decide which concert to attend. It is a trade-off that people often face in their daily lives. Once faced, the alternative needs to be evaluated thoroughly. Cost of something is the benefit that one has to forgo to get something. In this scenario, the ticket price is $ ...

Questions of chapter 12

Question 12-9
Sunk costs are those which have been incurred in the past and cannot be recovered. Therefore they are irrelevant to a new project because they don’t affect investor’s decision regarding viability of a project. Hence, it is illogical to include them in determination of cash flow associated with a project that is why they are excluded in the calculation of cash flow (Titman, Keown, & Martin,2011).

Question 12-5

In computation cash flows associated with an investment Loan principal amount and interest rate are cash out flows relating to financing activities (financial costs). ...

Task

Compare the corporate form of organization with the sole proprietorship and the partnership.

Describe the principles dealing with ways of creating value and economic efficiency

The major principles include comparative advantage and absolute advantage. Comparative advantage is the ability of a country to produce a particular commodity in a more efficient way than other countries. Countries that have modern machinery are likely to produce machine intensive products than other countries.
Absolute advantage is the ability of a county to be able to produce a particular commodity that other countries do not produce. For instance, a country that is endowed with a unique mineral that is not produced by other countries can be said to have absolute advantage ...

There are various techniques used to evaluate viability of investments and in comparing different investments. These techniques include net present value, payback period, accounting rate of return and internal rate of return . Net present value is preferred when evaluating projects because in takes into consideration time value of money unlike Payback period and accounting rate of return. Although internal rate of return considers time value of money it is confusing to compute and conceptualize .
Net Present value is computed by discounting annual cash flows at a given discounting rate. Annual cash flows are determined by subtracting annual cash outflows ...

Liquidity Ratios

These are ratios that help accompany to meet its short term maturity obligations. They are arbitrary measures that are used to verify a company’s capability to settle off short-term debts responsibilities. They basically measure the ability of the company to meet its near-term obligations. Current ratio and acid test ratio are example of liquidity ratio measures.

Current ratio

Current ratio is a liquidity measure that shows the rate at which a company is able to meet its short- term liabilities using its current assets. It indicates the capability of a company to meets its short term liabilities with its current assets. Companies with current ...