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Financial managers to understand time value of money? Calc

1) To what extent is it important for financial managers to understand the concept of time value of money? Why? Please explain your reasoning in two to three paragraphs.

2) Calculate the future value of the following:

a. $104,298 if invested for five years at a 7% interest rate

b. $119,112 if invested for three years at a 4% interest rate

c. $211,124 if invested for seven years at an 2% interest rate

d. $699,129 if invested for ten years with a 0.9% interest rate

Please use Table 2 [http://jcooney.ba.ttu.edu/fin3322/Brealey%20Files/Appendix%20A%20-%20Present%20Value%20Tables.pdf]

3) Calculate the present value of the following:

a. $752,126 to be received three years from now with a 4% Interest rate

b. $328,231 to be received five years from now with a 5% interest rate

c. $891,199 to received two years from now with a 12% interest rate

d. $387,111 to be received eight years from now with a 1% interest rate.

Please use Table 1 [http://jcooney.ba.ttu.edu/fin3322/Brealey%20Files/Appendix%20A%20-%20Present%20Value%20Tables.pdf]

4) Suppose you are to receive a stream of annual payments (also called an "annuity") of $493,723 every year for three years starting this year. The interest rate is 4%. What is the present value of these three payments?

Please use Table 3 [http://jcooney.ba.ttu.edu/fin3322/Brealey%20Files/Appendix%20A%20-%20Present%20Value%20Tables.pdf]

6) Suppose you are to receive a payment of $392,201 every year for three years. You are depositing these payments in a bank account that pays 2% interest. Given these three payments and this interest rate, how much will be in your bank account in three years?

If you do not know how to use calculator, please use Table [http://www.principlesofaccounting.com/ART/fv.pv.tables/fvofordinaryannuity.htm]

Attachments

Solution Preview

Your tutorial is attached in Excel, showing an example of faulty decision ignoring the time value of money and giving you the various computations. The tables are imported into Excel with the relevant factors circled in red so you see where they came from. Click in cells to see computations.

Here is the response to the first question:

If financial managers do not understand the time value of money, they will make a number of mistakes that will reduce their competitiveness and the quality of their decisions.
For instance, if the managers are not sensitive to the timing of when the money is obtained, they will be overly relaxed about collecting from customers and not attentive to when they pay their vendors. This will ...

Solution Summary

Your tutorial is 348 words for the first questions and excel computations using tables for the other questions. The tables are imported into Excel with the relevant factors circled in red so you see where they came from. Click in cells to see computations.

$2.19