The University of Phoenix simulation “Utilizing the Time Value of Money” focused on the financial principles used to evaluate and determine whether to outsource manufacturing or to invest in in-house operations. The simulation depicted real-life examples of how investment choices impacts the Net present value (NPV), internal rate of return (IRR), and cost of capital. The objective of the simulation was to apply time value of money principles to evaluate the investment alternatives of Cracker Pop. In each of the simulation’s scenarios, net present value and internal rate of return were used to determine the optimal choice pertaining to outsourcing or investing in a new plant for its card operations. Outsourced production issues arose in the second scenario introducing debt-equity mix in the evaluations. A drop in long-term interest rates made it more lucrative for InnoVista to invest in an additional plant with a debt-equity mix of 60% - 40%. The third scenario involved evaluating the criterion to increase production. Maintaining the same debt-equity mix as the second scenario, upping manufacturing to 900,000 units, and adding an additional shift proved to be the most optimal approach for InnoVista to meet consumer demands for its Cracker Pop cards as it resulted in a low cost per capital while also producing a high NPV. Aside from NPV and IRR, companies also use the payback period to evaluate possible investments. The payback period estimates the length of time required to recover the cost of an investment and addresses how desirable an investment is over the long-term. The payback method does have disadvantages in that it ignores time value of money principles and fails to recognize the profitability and risk of an investment. “Because of these reasons, other methods of capital budgeting like net present value and internal rate of return are generally preferred” (Answers Corporation, 2007). Although net present value (NPV) is a preferred criterion 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...

... 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...

...Abstract
In this paper, Team C will discuss the concept of the timevalue of money and the importance of this concept in business. Also, we will provide a demonstration of the use of the formula used to calculate the present and future values of money to get the present value of $100 using different periods of time and interest rates.
TimeValue ofMoney
In the world of business, it is essential to know what TVM represents and how it helps make better choices in how we spend our money. TVM is also known as TimeValue of money which is a given amount of interest earned in a period of time (Wikipedia, 2011). Each member in group “C” will use 100 as our present value and we will choose an interest rate and period. Timevalue of money concept is used to determine present and future values of money. “The timevalue of money refers to the relationship between time, money, and the rate of interest.” (Letsche, 2011). The formula consist of four components FV = Future Value, PV = Present Value, i = the interestrate per period and n= the number of compounding periods (TeachMeFinance.com)....

...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 valuable than the same amount in the future due to its capability of earning interest. For investors, this is single most important concept in the world of finance. This paper will discuss the different financial applications of the timevalue of money. This paper will also describe the components of interest and highlight various methods of calculating timevalue of money using different interest scenarios.
Financial Applications of the TimeValue of MoneyTimevalue of money has many useful applications. One of the most important uses is that it helps to measure the trade-off in spending and saving. This can have important consequences for your personal budgeting. If market interest rates are at 5%, one may decide that the timevalue of money is greater in the future, and...

...Fin 3322
TimeValue of Money Homework
1. Your local travel agent is advertising an extravagant global vacation. The package deal requires that you pay $5,000 today, $15,000 one year from today, and a final payment of $25,000 on the day you leave two years from today. What is the cost of this vacation in today’s dollars if the discount rate is 6%?
2. The tax rates are as shown. Your firm currently has taxable income of $79,000. How much additional tax will you owe if you increase your taxable income by $30,000?
Taxable Income
Tax Rate
$ 0 - 50,000
15%
50,001 - 75,000
25%
75,001 - 100,000
34%
100,001 - 335,000
39%
3. You are the beneficiary of a life insurance policy. The insurance company informs you that you have two options for receiving the insurance proceeds. You can receive a lump sum of $50,000 today or receive payments of $641 a month for ten years. You can earn 6.5% on your money. Which option should you take and why?
4. Your employer contributes $25 a week to your retirement plan. Assume that you work for your employer for another twenty years and that the applicable discount rate is 5%. Given these assumptions, what is this employee benefit worth to you today?
5. You retire at age 60 and expect to live another 27 years. On the day you retire, you have $464,900 in your retirement savings account. You are conservative and expect to earn 4.5% on your money...

...FINANCE
TIMEVALUE OF MONEY
The aim of this paper is to learn about time-value-of-money to make optimal decisions as manger must understand the relationship between a dollars present today and a dollar in the future.
Timevalue of money
Today’s financial managers often have to compare cash payments that occur on different dates. To make optimal decisions, the manager must understand the relationship between a dollar today [present value] and a dollar in the future [future value]. The timevalue of money is basically a measurement or perspective of an investment you might make while still considering its future decrease in value due to inflation. The timevalue of money allows us to understand what that inflation or decrease may become in the future or present. Most importantly, the timevalue of money concept allows us to decide whether it would be beneficial placing a sum of money into investment where it collects value from interest, or whether that same amount of money would be most valuable in the present due to inflation rates.
Understanding the concept of timevalue of money
It...

...ACFI 340 – TAKE HOME QUIZ - FALL, 2011
Below you will find a series of independent questions involving present value concepts. Show all factors used in present value computations and indicate the table that was used (FV of $1, PV of $1, etc). If you use a financial calculator, show the key strokes you used to compute the answer: N, i/y, PV, FV and PMT
Please download a copy of this quiz and type your answers after each question. Each student should design his/her own spreadsheets. Where amortization schedules are required, they should be labeled as exhibits and attached at the end of your quiz. On mortgage amortization schedules, attach only the first and last page of the schedule.
No “canned program” spreadsheets should be used. While you may discuss the quiz with one another, you are expected to prepare your own solutions independently of other students. Obviously identical spreadsheets will result in a penalty of 30 points on your total score.
a. Sacks Corporation bought a new machine and agreed to pay for it in 5 equal installments of $40,000 at the end of each of the next 5 years. Assuming that the prevailing rate of 6% applies to this contract, how much should Sacks record as the cost of the machine?
b. Design amortization schedules showing the payments under the assumption:
1. Interest is included in the face amount of the note.
2. The note is an interest bearing note.
c. Prepare the entry to...

...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;...

2104 Words |
5 Pages

Share this Document

{"hostname":"studymode.com","essaysImgCdnUrl":"\/\/images-study.netdna-ssl.com\/pi\/","useDefaultThumbs":true,"defaultThumbImgs":["\/\/stm-study.netdna-ssl.com\/stm\/images\/placeholders\/default_paper_1.png","\/\/stm-study.netdna-ssl.com\/stm\/images\/placeholders\/default_paper_2.png","\/\/stm-study.netdna-ssl.com\/stm\/images\/placeholders\/default_paper_3.png","\/\/stm-study.netdna-ssl.com\/stm\/images\/placeholders\/default_paper_4.png","\/\/stm-study.netdna-ssl.com\/stm\/images\/placeholders\/default_paper_5.png"],"thumb_default_size":"160x220","thumb_ac_size":"80x110","isPayOrJoin":false,"essayUpload":false,"site_id":1,"autoComplete":false,"isPremiumCountry":false,"userCountryCode":"US","logPixelPath":"\/\/www.smhpix.com\/pixel.gif","tracking_url":"\/\/www.smhpix.com\/pixel.gif","cookies":{"unlimitedBanner":"off"},"essay":{"essayId":33234796,"categoryName":null,"categoryParentId":null,"currentPage":1,"format":"text","pageMeta":{"text":{"startPage":1,"endPage":2,"pageRange":"1-2","totalPages":2}},"access":"premium","title":"Time Value of Money Simulation","additionalIds":[],"additional":[],"loadedPages":{"html":[],"text":[1,2]}},"user":null,"canonicalUrl":"http:\/\/www.studymode.com\/essays\/Time-Value-Of-Money-Simulation-160318.html","pagesPerLoad":50,"userType":"member_guest","ct":10,"ndocs":"1,500,000","pdocs":"6,000","cc":"10_PERCENT_1MO_AND_6MO","signUpUrl":"https:\/\/www.studymode.com\/signup\/","joinUrl":"https:\/\/www.studymode.com\/join","payPlanUrl":"\/checkout\/pay","upgradeUrl":"\/checkout\/upgrade","freeTrialUrl":"https:\/\/www.studymode.com\/signup\/?redirectUrl=https%3A%2F%2Fwww.studymode.com%2Fcheckout%2Fpay%2Ffree-trial\u0026bypassPaymentPage=1","showModal":"get-access","showModalUrl":"https:\/\/www.studymode.com\/signup\/?redirectUrl=https%3A%2F%2Fwww.studymode.com%2Fjoin","joinFreeUrl":"\/essays\/?newuser=1","siteId":1,"facebook":{"clientId":"306058689489023","version":"v2.8","language":"en_US"}}