# time value of money

*label*Business Finance

*timer*Asked: Sep 21st, 2017

*account_balance_wallet*$20

### Question Description

For this milestone, submit a draft of the Time Value of Money section of the final project, along with your supporting explanations. Base your calculations on the data provided in this case study

https://www.sec.gov/Archives/edgar/data/354950/000...

Be sure to substantiate your claims.

Submit your calculations on the designated tab of the Final Project Student Workbook and your supporting explanations as a Microsoft Word document

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## Tutor Answer

Please find your final answer.

Interest

2015

113

10%

2016

111

2017

108

2018

101

2019

97

PV

$ -102.73

$ -91.74

$ -81.14

$ -68.98

$ -60.23

Total PV

$ -404.82

Amount(million)

Present Value

Period ,nper

Interest

PMT

Future Value

$ -404.82

5

0.1

0

$ 651.96

Running head: MILESTONE PROJECT

1

Milestone Project

Name

University Name

Course

Sept 22, 2017

MILESTONE PROJECT

2

Introduction

The time value of money is a concept that says that the money available at the present

time is worth more than the same amount in future due to potential earning capacity (Curwin,

2013). Thus, the time value of money serves as a connection between the value of money and

the time.The relationship between time and value of money holds importance in case of

capital structure decision, investment decision and capital budgeting.An investor can use the

concepts in making an investment decision and assessing the risk of the capital.In short, an

everyday decision based on saving, borrowing, and spending depends on the time value of

money as it affects our daily transactions.

The objective of the paper is to analyze the concept of time value of money for the

company Home Depot, Inc. The Home Depot is an American home improvement supplies

that sell tools, construction products and services.

Present Value of Company at 8% Cost of Capital

In order to calculate the present value of the firm in 2014, the expected revenue of the

firm is obtained from the year 2015 to 2018 from the annual financial report of Home Depot,

Inc. ("HD-2.1.2015-10-K", 2017).The cash flows from 2015 to 2018 obtained were $113

million,$111 million,$108 million,$101 million and $97 million respectively. The present

value for 2014 will be the sum of discounted value from the year 2015 to 2018 Using excel,

the present value of cash flow at the 8% cost of capital obtained was $425.78 million,

Present Value of Company at 10% Cost of Capital

When the risk of the changes from 8% to 10%, the present value of money decreased

from $425.78 million to $404.82(see Appendix).Thus, increasing the capital cost from 8% to

10% cause a decrease of $20.96 million in its present value.

MILESTONE PROJECT

3

Reasonable Amount Company should be sold

When the five-year has elapsed the company can be sold based on its future value five

years from now. The future value of the company being obtained in five years from now will

be $685.73 million. On the other hand, future value calculated at 8% cost of capital obtained

was $625.61 which is $60.12 million less compared to 10% cost of capital. Thus, the

reasonable amount that should be sold at 10% interest rate is $685.73 million.

Net present value and risk have a strong relationship with each other. In order to

arrive at the correct or approximate present value, it is appropriate to assess the ris...

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