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Essay / Research Paper Abstract
This 6 page paper is based on questions set by the student. The first question explains the importance of the concept of present value in cooperate finance. The remaining questions demonstrate the way in which both future value and present value can be calculated. The bibliography cites 4 sources.
Page Count:
5 pages (~225 words per page)
File: TS14_TEPVcalc2.doc
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Unformatted sample text from the term paper:
a present value, a value equivalent to if a lump sum of cash was received today (an then invested or otherwise used).
Discounted cash flow to create a present value is important for a number of reasons. When any project or investment is assessed it is common sense that the likely return
assessed, as an organization is unlikely to be able to undertake potential investment projects they will want to assess potential returns in order to maximize those returns. However, assessing investments,
especially when they take place over a different term, can be difficult due to the impact of time on money (Howells and Bain, 2007). This into consideration of the impact
of time on money would indicate that the value of $100 in and today is greater than the value the hundred dollars received in a years time. Influences such as
inflation eroding the value of money, as well as the way in which cash received today can be utilized to grow elsewhere, indicate the time value of money (Baye, 2007).
For example, with the hundred dollars today, this could be invested so that any time it is worth $110 if a rate of 10% interest received. Therefore, if given the
choice between receiving $100 dollars today and $100 dollars in one year it is favorable for this to be received today, this has the greatest value. By taking the potential
future cash flows of an investment or project, and then discounting each is cash flow in order to create a present value creates a process by which the different investment
options may be examined. Utilizing present value when assessing investments ensures that opportunity costs can be assessed so that returns are maximized, and allows projects of different terms and risk
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