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Essay / Research Paper Abstract
This 6 page paper looks at the concept of the time value of money, defining the term and then examining how and why it is useful for financial managers. The paper then answers a set of questions requiring calculations to assess time value of money issues. These include calculating future values of exiting investments and present values of future revenue. All calculations are shown. The bibliography cites 4 sources.
Page Count:
6 pages (~225 words per page)
File: TS14_TETVcalc.doc
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Unformatted sample text from the term paper:
over time the value of money changes. For example, $100 today will depreciate in value over time, so it will take more money to buy the same goods at in
a year or two years time. This is generally refereed to as inflation as the costs of goods usually increases over time. However, the time value of money is not
limited to inflation. Money may also appreciate in value (Chadwick, 2007). If the same $100 is invested in a bond paying 7% for 1 year, the future value will be
$107. The importance of the concept can be seen in a simple example; a person is asked if they would like to
receive $1,000 today or $1,000 in two or three years time. Most people will answer that they would prefer to have the money today, with the knowledge it will
buy more today compared to utility it will provide in the future (Nellis and Parker, 2006). Likewise, if the person offered the
money does not want to spend it, but chooses to invest it, the $1,000 will be worth more in the future as they will be able to invest in to
gain a return so it will be $1,000 plus the interest. The concept of the time value of money is the foundation of calculating future values of current investments
of cash flows, and present values of future cash flows. Question 2 - The Importance of Time Value of Money Financial
managers need to be able to make sound decisions regarding investment decisions which are made; these may be straightforward financial investments, or investments in a project. The different options are
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