Time Value of Money Assignment Help
Time value of money (TVM) is a financial theory that describes the idea of the present value of money is more than the same amount in the future due to its potential ea
ing capacity. The finance principle is based on the fact that provided money can ea
interest, any amount of money is worth more the sooner it is received.
We all are aware of the fact that money deposited in savings account will ea
interest. So, anyone invests in the saving accounts, would prefer receive money today rather than the same amount in the future.
As an example Mark Fuller describes, 100 dollars of today's money invested for one year and ea
ing 5 percent interest will be worth 105 dollars after one year. Therefore, 100 dollars paid now or 105 dollars paid exactly one year from now both have the same value to the recipient who assumes 5 percent interest; using time value of money assignment help terminology, 100 dollars invested for one year at 5 percent interest has a future value of 105 dollars.
If you want to present excellent quality assignment on the time value of money, you can take professional time value of money assignment help from the experts.
Why is the time of value of money important in capital budgeting decisions?
Writing assignment on the time value of money also involves describing its significance in business. Only the experts, who have extensive knowledge on the topic, can help you do the job. So time value of money assignment help is a wiser option to choose.
When certain amount of money invested in the project, may be as an expansion, a strategic acquisition or just a purchase of the new piece of equipment. It may take years before that project begins producing a positive cash flow. The business requires confirming that whether those future cash flows are worth the upfront investment. This is the reason the time value of money is significant to capital budgeting.
The methods that companies apply:
Numerous companies utilize the time value of money to make suitable decision on capital projects as well as between competing projects. Net present value and Inte
al Rate of Retu
(IRR) are two most popular methods that companies utilize. You add up the present value of all cash flows involved in the project, if the total is greater than zero, then the project is worth doing. In the IRR method, you determine the rate of retu
that would make the present value of the future cash flows equal to your upfront cash. If the inte
al rate of retu
if greater than your discount, the project is worth going.
Future value basics
The two options are exhibited in front of you. Option A: Receive $10,000 now and Option B: Receive $10,000 in three years.
If you decide to go with Option A, and invest the total amount at a simple annual rate of 4.5 percent, your investment will reach $10,450 by end of the year. This amount is considered as the future value of your investment. The calculations are done by multiplying the principal amount $10,000 b the interest rate of 4.5% and then adding the interest gained to the principle amount,
The equation of Future value:
How to calculate future value:
By implementing the future value equation, you can get the value of the investment in the first year:
($10,000X 0.045) + $10,000
For further time value of money assignment help, if you invest $10, 450 at 4.5 percent interest rate for another rate. So after another year, how much would you have?
If you want to lea
the calculations of future value on your own, you can have one-to-one interaction with experts who have specialized knowledge in finance concepts. For time value of money assignment help, here we are demonstrating a few calculations of future value,
As mentioned above, after another year of investment of how much would you receive?
To calculate this, you would take the $10,450 and multiply it again by 1.045 (0.045 + 1).
Future value of investment at end of the second year:
$10,450 X (1+ 0.045)
The above result is equivalent to the following equation:
$10,920.25 = $10,000 X (1+ 0.045) X (1+ 0.045)
The reason can be described by the rule of exponents (maths), where the multiplication of like term is equivalent to adding their exponents. In the above equation, the two like terms are (1 + 0.045), and the exponent of each is equal to 1. Hence, the equation would take shape like this,
So, you can understand by the equation that we don’t need to calculate the future value of first year to find out the second year. If you already know how many years you would like to hold present amount money in an investment. You can easily calculate future value by the equation.
Present value basics
If you receive $10,000 today, generally the present value would be $10,000. The reason is, what your investment gives you how if you were to spend it today. If you were about to receive the same amount in a year, the present value would not be $10,000, because you don’t have it in your hand now in the present.
If you want to find out the present value of the $10,000, you need to presume that the $10,000 is the total future value of an amount as your investment.
If you want to calculate present value, you need an equation. If you find difficulties in understanding the functions of equations, you take immediate assistance from time value of money assignment help.
The equation of Present value:
To calculate present value, you need to subtract accumulated (hypothetical) interest from the $10,000. You can discount the future payment amount ($10,000) by the interest rate for the period. All you need to do is to rearrange the future value equation above so that you may solve for PV.
Future value equation,
Final equation of present value,
How to calculate present value:
If you would go with Option B, you have $10,000 to be received in three years measure the same as the future value of an investment. At the two-year mark, the present value of the $10,000 to be received in one year,
The equation goes as follows,
Present value of future payment at end of two years,
Following the rule of the exponents, you don’t have to calculate the future value of the investment every year. You can easily calculate today’s present value of the $10,000 expected from three years investment ea
More suitable choice between future value and present value:
Now, you know which a better choice is for you between Option A and Option B. If see review the situation, choosing Option B is taking $8,762.97 now and then investing it for three years. But if would go with Option A, the above calculation results depict that Option A is not only better for now, because you can have $10,000 right now but also it offers you $1, 237.03 ($10,000 - $8,762.97) more in cash. In future after investment, it gives you a future value that is $1,411.66 ($11.411.66 - $10,000) more than the future of Option B.
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