Time Value of Money
Time value of money is the concept that the value of a dollar promised in the future is less than the value of a dollar to be received today. For different situations, financial reporting uses different measurements. Some of the applications of present value-based measurements to accounting topics are notes, leases, pensions and installment contracts, etc.

This article presents three exercises in order to develop students’ basic valuation concepts and skills with respect to time value of money. The first exercise introduces the importance and power of money’s time value. It uses a video accompanied with a couple of questions to attract students’ attention in time value of money and valuation material. Financial markets provided the money to fund history’s activities. Since operations in these markets mainly relied on the improvement of mathematics, capital markets cannot develop without the time value of money mathematics.

The second exercise attempts to help students discover relationships between cash flows, interest rates and investment values by four steps. Step 1 introduces basic time-value-of-money calculations and the way to use present value tables. The purpose of the second step is to associate investment purchase price with the present value of future cash flows. Next, step 3 introduces earnings calculation and amortization concepts. It teaches students how to calculate the interest earnings (or expense) from a series of bond cash flows and adjust the bond investment’s carrying value. After being familiar with the calculation of a bond’s cash flows, step 4 explains bonds and bond terminology. The concept includes face value, stated rate of interest, market rate of interest, par, discount and premium calculations.

The last exercise is the application of the time value of money – a retirement savings assignment. The assignment contains two parts: one is calculating future retirement asset values based on given retirement...

...How important is it for firms to focus on the value added concept?
Definition of Value Added concept:
The enhancement a company gives its product or service before offering the product to customers. Value added is used to describe instances where a firm takes a product that may be considered a homogeneous product, with few differences (if any) from that of a competitor, and provides potential customers with a feature or add-on that gives it a greater sense of value.
* EVA is calculated as following:
EVA=Net Operating Profit after Tax (NOPAT) – Capital Cost
Importance:
* Compared to ROE, EVA includes the concept of capital cost, shows the amount of value creation, and includes the concept of balance sheet. This is the advantage of EVA.
* The significant difference of ROE from EVA is that ROE does not include the concept of capital cost. Because calculation of EVA deducts capital cost from NOPAT, the result of EVA is shown by amount, not in percentage. This makes it clear to understand that profit of the company is exceeding capital cost if EVA is positive, and profit of the company is under capital cost if EVA is negative.
* EVA is also considered to have less influence by the change in accounting policy of the company. This is because profit volatility by the changing accounting policy is offset due to increase or decrease of invested capital in Balance Sheet at the same...

...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 else equal. As a result, when one deposits money in a bank account, one demands (and earns) interest. Money received today is more valuable than money received in the future by the amount of interest we can earn with the money. If $90 today will accumulate to $100 a year from now, then the present value of $100 to be received one year from now is $90.
To fully understand timevalue of money one must first understand a few terms. Present value and future value are totally different. They also have their disadvantages and advantages; it just depends on how they are used. Of course, present value is what you have right now at this present time. While future value is the amount of money you will have at a given time in the future. Future value has a tendency to be deep;...

... This article will explain the financial concept of timevalue of money. The overview provides an introduction to the principles at work when money grows in value over time. These principles include future value of money, present value of money, simple interest and compound interest. In addition, other concepts that relate to factors that can impede the growth in value of money over time are explained, including risk, inflation and accessibility of assets. Basic formulas and tables have been provided to assist in calculating various formulations of timevalue of money problems. Explanations of common financial dealings in which the timevalue of money is an important consideration, such as annuities, loan amortization and tax deferral options, are included to help illustrate the concept of the timevalue of money in everyday life.
The timevalue of money is a fundamental financial principle. Its basic premise is that money gains value over time. As a result, a dollar saved today will be worth more in the future, and a dollar paid today costs more than a dollar paid later in...

...TIMEVALUE OF MONEYTimevalue of money is useful in making informed business decisions. For example the "net present value method" can be used to help decide the best alternative among multiple alternative uses of a firm or personal financial resources. By discounting various alternatives to their "present value" one can compare the alternatives. Timevalue of money can also answer such questions as what one's investment will be worth at a certain point of time in the future, assuming a certain interest rate. Timevalue of money can also be used to compute such useful information as car, mortgage and other loan payments. Another use of timevalue of money in accounting is reporting of certain long-term assets and liabilities.
Timevalue of money is based on the principle of compound interest. Each time there is a compounding period the new principal is increased by the interest from the previous period.
Converting Before Using the Tables
When using the tables, you may need to convert if, for example, in a lump sum situation there are more than one compounding periods in a year. Or you may need to convert (to monthly compounding) if, for...

...TimeValue of MoneyTimevalue of money is an amount of money available today can be safely invested to accumulate to a larger amount in the future.
Present value- an amount of money available today.
Future amount-amount receivable/payable at a future date
Relationship Between Present Values and Present Values
The difference between present value and future amount is the interest that is included in the future amount. It depends on two factors:
1. Rate of interest at which present value increases
2. Length of time over which interest accumulates
The basic concept of TimeValue of Money:
* A PV is always less than its future amount.
* A future amount is always greater than a present value
* A dollar available today is always worth more than a dollar that does not become available until a future date
* A dollar available at a future date is always worth less than a dollar that is available today
Future Value Concepts
Future Value of a Single amount
The future value of a single amount is the value at a future date of a given amount invested assuming compound interest.
Formula:
FV= p X (1+i)n
Where:
FV= future...

...TimeValue of Money
As the name suggests it implies money valued with reference to time which may be present or future. “Time” allows the prospect to earn interest and defer consumption.
Present Value (PV) – it means the current value of money in future measured at a particular interest rate.
Future Value (FV) – it means the value of present money at some point of time in future measured at a particular interest rate.
The value of dollar is more as of today than in future. This is due to the following reasons:
• Risk/Uncertainty about the receipt of money in future
• Preference for current consumption.
• Present money offers investment opportunities to earn additional cash flows. Example – If you offer someone $5000 today or $5000 after a year, he would prefer $5000 today as that money can then be invested and one can earn interest on it.
• At the time of inflation, the value of dollar as of date represents more purchasing power than the value of dollar after an year.
Concept of TimeValue of Money.
1. FV of a single cash flow.
2. FV of periodic cash flows.
3. PV of a single cash flow.
4. PV of a periodic cash flows.
1. FV of single cash...

...Timevalue of money ("TVM") is defined as the idea that money available at the present time is worth more than the same amount in the future, due to its potential earning capacity. This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received. TVM is also often referred to as "present discounted value" (Answers Corporation, 2006). TVM concepts help people like managers or investors understand the benefits and the future cash flow to help them determine if the future benefits will justify the initial cost of the project or investment. To recognize how annuities (a set of fixed payments over a specified length of time) affect the TVM, managers need to consider the factors of interest rates, opportunity cost, future and present values of the money, and compounding. In this paper, I will explain how annuities affect TVM problems and investment outcomes. I will also address the impact of the following on TVM; interest rates and compounding, present value, opportunity cost, and annuities as well as the Rule of 72.
How do annuities affect TVM problems outcomes? Annuities are an investment that promise a constant amount of cash over a certain period. Since annuities generally gain interest, the organization receiving the payments is gaining...

...Chen Suiming
4385287
5.1 Money has a timevalue because a dollar in hand today is worth more than a dollar to be received in the future. This makes sense because if we had the dollar today, we could buy something with it or invest it and earn interest.
5.5 Compounding is the process by which interest earned on an investment is reinvested so that in future periods, interest is earned on the interest previously earned as well as the principal.
Discounting is the process by which the present value of future cash flows is obtained.
5.4 The future value equation is: FVn = PV * (1+i)n
Future value at the end of year 3 = $ 5000 * (1+0.105)3
= $ 6746. 163125
Alison Green can collect $ 6746.163125 in 3 years.
5.11 The present value equation is: PV = FVn(1+i)n
The loan = 7750(1+0.06)3
= 6507. 05
I am willing to lend my brother around $ 6507
5.15 According to the equation: PV = FVn(1+i)n
1+in = FVnPV
Therefore, 1+i2 = 15001300
(1 + i) = 1.074
i = 0.074 =7.4%
Because 7.4% > 6.5%, so I should go with bank.
5.27 According to the equation: FVn = PV * (1+i/m)m*n,
a. FV5 = 3500 * (1+0.089/12)12*5...

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