According to Wikipedia.com, “Present value is the value on a given date of a future payment or series of future payments, discounted to reflect the time value of money and other factors such as investment risk. Present value calculations are widely used in business and economics to provide a means to compare cash flows at different times on a meaningful "like to like" basis.” (1) In this paper, we are going to examine why the concept of present value is so important to corporate finance. We are also going to complete some example problems concerning present value, future value and annuities. Let’s examine why the concept of present value is important to corporate finance and why it’s often the first topic taught in any finance class.

Why is the concept of present value important to corporate finance? According to Wikipedia.com, “The concepts of present and future value hinge upon the premise that an investor prefers to receive a payment of a fixed amount of money today, rather than an equal amount in the future, all else being equal.”(2) Present value is important to corporate finance because it represents the value of the money at that time that’s available to use for another opportunity. The common example is if you would accept $1000 today or 5 years from now. With $1000 today, you could invest it and make money off of it for the next 5 years whereas $1000 given to you 5 years from today is still only $1000. Corporations are the same as us; they exist to make money for the shareholders. That is why the concept of present value is important to corporate finance. Let’s take a look at some examples of present and future value to help explain the importance of present value. 2. Calculate the future value of the following: Future Value = Present Value * (1+r) T A. $600 if invested for five years at a 9% interest rate

...MGCR 341: Finance 1
Vadim di Pietro
Assignment 1: Solutions
Topic: Timevalue of money: Retirement savings problem
[pic]
1) Today is July 1, 2010. You just graduated university. You plan to take a year off to travel and then start work one year from today. Your first monthly salary of $5,000 will be paid on August 1, 2011. Assume your monthly salary will increase by 0.8% each month thereafter, until you retire. Suppose that...

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The Present and Future Price of Money
Trident University International
FIN 501
Module 2: Case Assignment
Dr. John Halstead
One of the most important concepts about saving and investing is the timevalue of money. It can be used to compare investment alternatives and to solve problems involving loans, mortgages, leases, savings, and annuities. This means money paid out or received in...

...Introduction
The timevalue of money is an important concept in financial management. It can be used to compare investment alternatives and to solve problems involving loans, mortgages, leases, savings, and annuities. The timevalue of money can be defined as the value of money received today instead of in the future. This is based on the premise that cash in hand today is more...

...TimeValue of Money
The timevalue of money (TVM) or, discounted present value, is one of the basic concepts of finance and was developed by Leonardo Fibonacci in 1202. The timevalue of money (TVM) is based on the premise that one will prefer to receive a certain amount of money today than the same amount in the future, all...

...TimeValue of Money (TVM), developed by Leonardo Fibonacci in 1202, is an important concept in financial management. It can be used to compare investment alternatives and to solve problems involving loans, mortgages, leases, savings, and annuities.
TVM is based on the concept that a dollar today is worth more than a dollar in the future. That is mainly because money held today can be invested and earn interest.
A key concept...

...one of the most important concepts is the TimeValue of Money (TVM). TimeValue of Money concepts helps a manager or investors understand the benefits and the future cash flow to help justify the initial cost of the project or investment. Many of the assets businesses and individuals own are financed with money borrowed from others, so the understanding of TVM is crucial to making good buying...

...TimeValue of Money Practice Problems − Solutions
Dr. Stanley D. Longhofer 1) Jim makes a deposit of $12,000 in a bank account. The deposit is to earn interest annually at the rate of 9 percent for seven years. a) How much will Jim have on deposit at the end of seven years? P/Y = 1, N = 7, I = 9, PV = 12,000, PMT = 0 ⇒ FV = $21,936.47 b) Assuming the deposit earned a 9 percent rate of interest compounded quarterly, how much would he have at the end...

...FIN2110 Finance Basics for Managers Fall 2011
TimeValue of Money Problems
Calculating Future Values
Assume you deposit $10,000 today in an account that pays 6% interest. How much will you have in five years?
= $10,000 (FVIF of 6%, 5years)
= $10,000 * 1.3382
= $13,382
Calculating Present Values
Suppose you have just celebrated your 19th birthday. A rich uncle has set up a...

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