Time value of money

2 (i) Definition of Payback: - Payback period is the time taken by the project to return the initial investment back to the investor. How long investor needs to wait to get his investment back. ADVANTAGES DISADVANTAGES 1. The payback technique is well known with business investigators for a few reasons. 1. The payback technique overlooks the time estimation of cash. 2. Payback is always calculated on the basis of cash inflows 2. The money inflows from a project might be sporadic, with the greater

In this chapter 4, Time Value of Money we discussed about Future Value, Present Value, Rates of return and Amortization. Future value is the value of an asset at a particular date that means a given sum of money is “worth” at a specified time in the future with certain interest. It is product of present value and accumulation function. Present value also known as Present Discounted value. It is less or equal to the future value because of money has interest rate. For example “A dollar today is worth

FIN 600 – Lecture 3 Discounted Cash Flow Valuation Chapter Outline Time Value of Money Valuation: The One-Period Case The Multiperiod Case Compounding Periods Simplifications What Is a Firm Worth? Time Value of Money     A dollar received today is worth more than a dollar received in the future. Interest - is the return you receive for investing your money. The interest rate is the basis for a test that any proposed investment must pass. Example:    Putting

Time Value of Money Extra Problem Set 1 1. You are planning to retire in twenty years. You 'll live ten years after retirement. You want to be able to draw out of your savings at the rate of $10,000 per year. How much would you have to pay in equal annual deposits until retirement to meet your objectives? Assume interest remains at 9%. [$1254]   2. You can deposit $4000 per year into an account that pays 12% interest. If you deposit such amounts for 15 years and start drawing money

Introduction The following paper analyzes a project from financial perspectives using the capital budgeting techniques like Net Present Value (NPV) and Internal Rate of Return (IRR). Background My dad has a textile business, involved in embroidery and painting of the fabric. I have been visiting my dad’s office complex and observing the whole process of clothes manufacture. The most important asset for the business is a large machine required for whole painting process. The existing machine with

1. Business risk is the possibility of a business not meeting anticipated sales or be impacted by an expected influence that will result in a decline in profit. In the Thurmond Pig Farm case, the company faced high business risk by selling their hogs on the market at the spot price which has great volatility resulting in high fluctuation in the market. In the case the Thurmond 's had cut as many costs as possible by cutting livestock inventory and sitting on the majority of the hogs in hopes of the

CHAPTER 2: THE TIME VALUE OF MONEY This chapter consists of five sections: the first section explains the time value of money and the factors that affect the time value of money; The second part will help to distinguish the types of cash flow; The next two sections will discuss how to determine the present value and the future value of cash flows; The final section will guide on how to plan an amortized loan. Before we start, we need to clarify a problem together, which is why we have to study

years at 9% compounded annually b. $8,000 invested for 10 years at 8% compounded annually c. $800 invested for 12 years at 12% compounded annually d. $21,000 invested for 6 years at 5% compounded annually 5-2A. (Compound Value Solving for n) How many years will the following take? a. $550 to grow to $1,043.90 if invested at 6% compounded annually b. $40 to grow to $88.44 if invested at 12% compounded annually c. $110 to grow to $614.79 if invested

16 Time Value of Money PV, FV, Perpetuity, Maturity etc 17 Nomenclatures • Future value – money you get tomorrow from committing it somewhere today • Present value – earlier money on a time line or money you should have had yesterday provided you have its FV today! • Interest rate – “exchange rate” between earlier money and later money – Discount rate – Risk free rate – Cost of capital – Hurdle rate – Required return 18 Future Values • FV = PV(1 + r)t – FV = future value – PV =

FIN254 Case Time Value of Money Fall-2012 1) Assume that your father is now 50 years old, that he plans to retire in 10 years, and that he expects to live for 25 years after he retires, that is, until he is 85. He wants a fixed retirement income that has the same purchasing power at the time he retires as $40,000 has today (he realizes that the real value of his retirement income will decline year by year after he retires). His retirement income will begin the day he retires, 10 years from