What is the time value of money? Why should accountants have an understanding of present and future value concepts? How can these concepts be applied to business decisions? Provide examples of how these concepts can be used in business and personal finances please!© BrainMass Inc. brainmass.com October 25, 2018, 9:49 am ad1c9bdddf
The time value of money is a simple concept that compares cash flows at different points in time. Typically you are comparing cash flow today vs cash flow in the future. There are a couple other key concepts to consider when discussing the time value of money; interest and opportunity cost. Both of these concepts are variables that must be considered when performing time value of money ...
Brief opinion and explanation of the time value of money and how businesses use the concept. 262 words.
Compute the present value of this stream of income at a discount rate of 8%. Compare the present values of the income stream under the three discount rates.
Suppose you just inherited a gold mine. This gold mine is believed to have three years worth of gold deposit. Here is how much income this gold mine is projected to bring you each year for the next three years:
Year 1: $42,000,000
Year 2: $62,000,000
Year 3: $99,000,000
Compute the present value of this stream of income at a discount rate of 8%. Remember, you are calculating the present value for a whole stream of income, i.e. the total value of receiving all three payments (how much you would pay right now to receive these three payments in the future). Your answer should be one number - the present value for this oil well at a 8% discount rate but you have to show how you got to this number.
Now compute the present value of the income stream from the gold mine at a discount rate of 6%, and at a discount rate of 4%. Compare the present values of the income stream under the three discount rates.