Time value of money Research Paper Example | Topics and Well Written Essays - 1250 words

while valuate of cash - Research Paper Examplegger amount in the days to come.The renowned occurrence that money possesses a time place implies that time value of that money must be put into paper when making decisions to do with pay. This is done by restating values of money through time with what is called Calculations of Time cherish of Money. These calculations are applied so as to shift monetary unit values of through the habituated time period. The calculations can be used to state future monetary flows in present value terms and also to restate todays value amounts into future monetary values. These calculations are by far the most powerful tool that is available for making business and financial decisions. These values may be used to restate cash flows in such a way as to view them comparable in the process of making financial decisions. The present value of money puts into account that fact that cash always loses value over time due to inflation as well as opport unity cost. The reason the topic of present value of money is very fundamental in finance is because its calculation forms a basis for all decisions that managers get to. Calculation of present values is very important in making many financial decisions that face all individuals and managers in various types of firms. This procedure allows many financial computations in relation to the interest earning, returns upon investments gains, capital budgeting processes of decision, predicaments relating loan, insurance programming predicaments,and many other business addition buying or decisions in relation investment. These computations also grant the basis for part of the most usually used valuation models as well as concepts applied in todays finance. mischance to discount makes ventures that yield returns in the future appear to be more valuable than they really are.(Rosen, H.S 2005 pp. 241)Through reckon the net present value, firms are able to make accurate estimates on the retu rns to expect from various investments they take aim to undertake. This is through calculating returns on investments. Firms are also in a better position to make reasonable and accurate budgets since they are under no illusion about their actual present or future monetary value. The net present value is also very important in relations with loans related issues that may arise. The finance manager of a company will be in a position to know the amount of loan that the firm can afford to repay comfortably. This is very important because the company will avoid having too large loans which may be difficult to repay and consequently it will remain financially stable. Finally, calculation of net present value is very useful in solving insurance programming problems of a company. Question 2 Future Value(FV) = Present Value(PV) ?( 1 + stakes Rate(R) )T , where T is the number of periods or years a) Present value = $ 15,000, Interest Rate = 7%, Time = 5years Therefore,Future Value = 15,0 00 ? (1 + 0.07)5 = $21,038.28 b) Present value = $ 19,500,Interest Rate = 4%,time = 3years Future Value = 19,500?(1+0.04)3 = $ 21,934.8 c) Present value = $