Access over 20 million homework & study documents

search

Time Value of Money

Content type
User Generated
Rating
Showing Page:
1/6
Running head: TIME VALUE OF MONEY 1
Time Value of Money
Student’s Name
Institution Affiliation

Sign up to view the full document!

lock_open Sign Up
Showing Page:
2/6
TIME VALUE OF MONEY 2
Time Value of Money
MEMORANDUM
To: Mr. Hill Brandt, Chief Executive Officer, ABC Golf Equipment Limited
From:
Date: 18
th
January 18, 2017
Re: Time Value of Money
Introduction
The concept of time value of money is essential in making decisions on capital projects
and deciding amongst competing projects. The value of cash and financial assets is determined
by inflation rates, government policies, international market changes, and various changes in
global trade patterns. Due to the unstable nature of the aforementioned factors, the future real
value of cash is bound to change. Therefore, it has some element of uncertainty. In addition,
inflation causes the value of currencies to decrease and there is always the tendency of people
preferring current consumption to future consumption (Miller-Nobles, Mattison, & Matsumura,
2015). Factors such as inflation and desire for present consumption make the determination of
the value of money essential since a dollar today is more valuable than when earned in future.
Calculation of Time Value of Money
At the most basic level, the time value of money aims at comparing the future value of
cash with its present value. Due to the risk component in future cash flows and also factors such
as inflation and foregone opportunities, a discount rate is used to cater for these factors.
Therefore, the future value of cash is equal to the present value of cash multiplied by the
discount rate and then adjusted to cater for the time required to earn this cash (Carther, 2015).
The time value of money can be represented using the following equation.

Sign up to view the full document!

lock_open Sign Up
Showing Page:
3/6

Sign up to view the full document!

lock_open Sign Up
End of Preview - Want to read all 6 pages?
Access Now
Unformatted Attachment Preview
Running head: TIME VALUE OF MONEY Time Value of Money Student’s Name Institution Affiliation 1 TIME VALUE OF MONEY 2 Time Value of Money MEMORANDUM To: Mr. Hill Brandt, Chief Executive Officer, ABC Golf Equipment Limited From: Date: 18th January 18, 2017 Re: Time Value of Money Introduction The concept of time value of money is essential in making decisions on capital projects and deciding amongst competing projects. The value of cash and financial assets is determined by inflation rates, government policies, international market changes, and various changes in global trade patterns. Due to the unstable nature of the aforementioned factors, the future real value of cash is bound to change. Therefore, it has some element of uncertainty. In addition, inflation causes the value of currencies to decrease and there is always the tendency of people preferring current consumption to future consumption (Miller-Nobles, Mattison, & Matsumura, 2015). Factors such as inflation and desire for present consumption make the determination of the value of money essential since a dollar today is more valuable than when earned in future. Calculation of Time Value of Money At the most basic level, the time value of money aims at comparing the future value of cash with its present value. Due to the risk component in future cash flows and also factors such as inflation and foregone opportunities, a discount rate is used to cater for these factors. Therefore, the future value of cash is equa ...
Purchase document to see full attachment
User generated content is uploaded by users for the purposes of learning and should be used following Studypool's honor code & terms of service.

Anonymous
Just what I needed…Fantastic!

Studypool
4.7
Trustpilot
4.5
Sitejabber
4.4

Similar Documents