Assignment 1: Discussion—Value of Money
Business decisions are based on the time value of money. Bonds, stocks, loans, and other business investments are valued by determining the present value of an expected cash flow, which is also called discounting the cash flow. The time value of money finds considerable application in the decision-making processes of a business.
In this assignment, you will apply the basic principles of the time value of money to business decisions.
You are the chief financial officer of a firm. The firm has an expected liability (cash outflow) of $2 million in ten years at a discount rate of 5%.
- Calculate the amount the firm would need on the present date as savings to cover the expected liability.
- Calculate the amount the firm would need to set aside at the end of each year for the next ten years to cover the expected liability.
Using the Argosy University online library resources, identify an article that demonstrates the application of time value of money principles to a business decision.
- Explain the specific business decision that management made after computing this value. Analyze how management used the concept of the time value of money principles to make this decision.
- Analyze factors other than the time value of money that management considered or should have considered in reaching the business decision.
- By the due date assigned, post your responses in a minimum of 500 words to this Discussion Area. Support your assumptions with reputable source material.
- Through the end of the module, read and respond to at least two other classmates’ posts. While responding, consider the implications for the firms selected in applying the concept of the time value of money, such as present value (PV) and future value (FV). What would happen if the firms do not apply the concepts of the time value of money to their finances?