Nobody downloaded yet

Case 3: Time Value of Money and Capital Budgeting - Coursework Example

Comments (0) Cite this document
Summary
Lets take the reinvestment rate to be 10%. Therefore, FV of positive cash flows = 150,000(1.1)^2 + 250,000(1.1)^1 + 350,000 = 806,500. The PV of negative cash flows =…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER97.6% of users find it useful
Case 3: Time Value of Money and Capital Budgeting
Read TextPreview

Extract of sample
"Case 3: Time Value of Money and Capital Budgeting"

Download file to see previous pages The PV of the negative cash flow = 1,722,000. Therefore, the MIRR = {5,430,732/1,722,000}^1/6 – 1 = 21.1 %.
The firm should adopt project B. The supporting argument is that comparatively, project B has a positive NPV while project A has a negative NPV. A positive NPV is an indication of a possible future growth and financial stability. Therefore, investors who wish to create wealth should consider undertaking project B. The second reason for preferring project B is that the IRR is greater than the cost of capital. That is 36.67 % > 8.5 %. The IRR is used to determine whether an investment would generate high returns to facilitate the payment of interest on cost of finance (Marx 212-289).
The amount to be drawn after retirement is $ 3000 per month (12*3,000) = $ 36,000 per annum. The expected life span after retirement is 20 years. Therefore, the requirement is to save (36,000*20) = $ 720,000 in a period of 35 years before retiring in order to meet my expenditure level of 36,000 per annum. This scheme amounts to an ordinary annuity in which $ 720,000 is the future value, n = 35 years, annuity = $ 9,600 per annum and r ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Case 3: Time Value of Money and Capital Budgeting Coursework”, n.d.)
Case 3: Time Value of Money and Capital Budgeting Coursework. Retrieved from https://studentshare.org/finance-accounting/1632070-case-3-time-value-of-money-and-capital-budgeting
(Case 3: Time Value of Money and Capital Budgeting Coursework)
Case 3: Time Value of Money and Capital Budgeting Coursework. https://studentshare.org/finance-accounting/1632070-case-3-time-value-of-money-and-capital-budgeting.
“Case 3: Time Value of Money and Capital Budgeting Coursework”, n.d. https://studentshare.org/finance-accounting/1632070-case-3-time-value-of-money-and-capital-budgeting.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document
CHECK THESE SAMPLES - THEY ALSO FIT YOUR TOPIC
Time value of money
...+160019.3= $ 180,000 Question 5 In this case, the amount of money that will have accumulated in the account will be given by; Total Value = D/(1+r)1 +D/(1+r)2 + D/(1+r)3 Deposit (D) = 120,000, Interest Rate = 2%, Time Period = 3years Therefore, Total Value = 120,000/(1+0.02)1 + 120,000/(1+0.02)2 + 120,000/(1+0.02)3 =117647.059+ 115340.254+ 113078.68 = $ 346,065.9927. Conclusion From the above discussion and calculations, it is very clear that the way in which money changes its value with time is a very complex issue of and is very important in business and finance. The concept of time value of money affects all decisions that individuals and financial managers of various firms make concerning investment and other financial aspects... ?...
5 Pages(1250 words)Research Paper
Time value of money
...threats so far the risk factor is considered. With simple thumb rule, I will not pay more than $1850 for the bond of this company that will fetch me around $2,000 after a year from this company. (Future value, FinanceProfessor.com) Answer 2. Cash flow (maturity value) available in this case is $2,000 The time period is one year for which it is required to find the present value, which is given as PV = CF * 1/ (1+r)t PV= 1,850 CF= 2,000 t=1, putting these values in the equation, it can be solved for r (discount rate), which will give us applicable discount rate. 1+r= CF/PV 1+r=2000/1850=1.08 or r=0.08 Hence discount rate for this bond is...
3 Pages(750 words)Research Paper
Time Value of Money
...in various investment options which will increase the amount. Moreover, there is also an opportunity cost that is associated with the cash that is received later. This is the cost of the best foregone opportunity that could have been taken with the cash available (Econedlink.org, 2011). Cash received later can’t be used for any investment options present at the current time frame. The concept finds significant applications in the area of capital budgeting, lease versus buy decisions, accounts receivable analysis, financing arrangements, mergers and pension funding (Ross et.al., 2007, pg. 60). The concept of time value of money is used in...
4 Pages(1000 words)Essay
Time Value of MOney
...?Time Value of Money The situation that a client of the company is facing is whether to buy a fixed income security i.e. bond, which will pay $ 1000000 a year from today. The detailed features of the bond, whether it is a coupon paying bond or a zero coupon bond is not known. However, Time Value of Money analysis needs to be conducted in order to find out what payment should be made for the bond now in order to get back $ 1000000 after one year. However, there are significant other factors that need to be considered while conjuring up to the present value of the bond. Before calculating the discount rate and...
3 Pages(750 words)Research Paper
The Time Value of Money
...The Time Value of Money What is Time Value of Money To understand time value of money, suppose that you are offered two options. You can take $ 10000 today or $10000 five years from now. Which one should you choose Many of us would accept the first option since it will provide us with the $ 10000 today and we humans, being impatient would not want to wait for 3 years for this $ 10000. Although, our decision is correct in financial terms, what we fail to understand is that the $ 10000 received today will not be equal to $ 10000 received five years from now because the $...
4 Pages(1000 words)Essay
Time Value of Money
...Where P is the principal amount, i is the interest rate and n is the periods for which the investment is made. With increasing interest rates, the future value also keep on increasing. With changing interest rates, the above formula would be applied separately for the different rates. Present Value The present value of a future investment can also be calculated keeping in mind the time value of money. The present value of a future investment is the current value of that payment that is to be received in the future. Discounting is the process that is employed in this case. This is the...
3 Pages(750 words)Essay
Time Value of Money Calculations
...Time Value of Money Introduction The creation of added value is the main objective of investing in projects. Updating the server population may benefit the IT department and by extension the organization in some way. However, the cost of doing so may outweigh this benefit and so may not create added value for the company. It therefore means that the project must be evaluated to determine its profitability. In order to determine whether or not a project is beneficial or whether one project is more beneficial than another a number of project evaluation techniques are available for use in making decisions. Project Evaluation Techniques Capital budgeting decisions are based on an evaluation of the cash flows expected from investing... of...
3 Pages(750 words)Assignment
Time value of money
...TIME VALUE OF MONEY Time value of money is a term that measures the increase or decrease in the value of money with respect to time. The buying powerassociated with certain amount of money; do change as the time passes and multiple factors such as inflation, exchange rates, interest rate and other fluctuations economic conditions come into play. Two factors are central in this concept; present value and future value of money (Homer and Leibowitz, 269-276). One of the important financial decisions that...
1 Pages(250 words)Essay
Time Value of Money
...on the investor in the case where they decide to surrender the given contract (annuity) within the first 5 to 10 years, depending on the duration of the given annuity. 3. Lack of Capital-Gain Treatment: the taxes levied on annuities treat all profits or gains as ordinary income Question 3 The future value of the annuity can be obtained by using the future value formula in excel. Given: Cash flows per period (C) = $10,000 Number of years in cash flows = 5 The Number of compounding periods per year = 1 Number of periods = 5 * 1 = 5 Discount Rate per Period = 5% Future Value Calculator Enter the type of cash flow that you...
3 Pages(750 words)Coursework
Time Value of Money _
...Time Value of Money Affiliation “Take heed if your are buying or selling annuities”, is an article that provides an imformatic look at the ever changing regulatory landscape, and its relation to annuity products. It also elaborates on the responsibilities a fiduciary has when it comes to selling these products to a client. The article discusses the criteria, legal factors and issues an attorney has to consider as a trust fiduciary on annuity investments in the US. Various federal and state rules have been trying to narrow down the sale of equity indexed annuities to suitable investors. It is important that lawyers should note the key issues in annuity sale and investment. The relationship between a trustee and the beneficiaries... that the...
3 Pages(750 words)Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Let us find you another Coursework on topic Case 3: Time Value of Money and Capital Budgeting for FREE!
Contact Us