Explore BrainMass
Share

# The Time Value of Money

### Explain use of TVM in business; how are calculations made; use in a retirement plan

How would you explain the use of TVM in business? What considerations are made when calculating TVM? How can you use TVM to create your own, or someone else's, retirement plan?

### Time Value of Money: Relationship between present and future value of a dollar.

Is a dollar today worth more than a dollar tomorrow? Why or why not? What is the relationship between present and future value?

### Future Values Tables

Chapter 4: Problem 4.3 Use the future value interest factors in Appendix Table A-1 in each of the cases shown in the table on the facing page to estimate, to the nearest year, how long it would take an initial deposit, assuming no withdrawals, a. To double b. To quadruple. Case Interest Rate A 7% B 40 C 20 D

### Time value of money: begin with one penny.

Suppose that you begin the month with one penny. Each day, you earn as much as the total you possessed the day before (day 1 you have \$0.01, day 2 you earn \$0.01 and you now possess \$0.02, day 3 you earn \$0.02 and now possess \$0.04, etc.). How much will you possess at the end of one month?

### Deterrent for future crimes?

Do you think punishment for a crime should be a deterrent for future crimes? Would a more lenient punishment for a first time offender be a sufficient deterrent?

### The time value of money: present value calculations

1. Present Values. Compute the present value of a \$100 cash flow for the following combinations of discount rates and times: a. r = 8 percent, t = 10 years. b. r = 8 percent, t = 20 years. c. r = 4 percent, t = 10 years. d. r = 4 percent, t = 20 years.

### Finance: time value of money, the dollar, bond ratings, debt vs equity, cost of capital

Is a dollar today worth more than a dollar tomorrow? Why or why not? What is the relationship between present and future value? What impact does a company's bond rating have on its cost of capital? What is the relationship between interest rates and bond prices? Should a company have more debt or more equity in its c

### Northeast Company: Diluted earnings per share calculation

Northeast Company has 200,000 shares of common stock and 50,000 warrants outstanding. Each warrant entitles its owner to buy one share at a price of \$20 before 2010. The firm's basic earnings per share is \$2.25. What is the firm's diluted earnings per share? \$1.15 \$1.25 \$1.50 \$1.80 \$2.00

### Time Value of Money: Buying a Big-Screen TV

A friend plans to buy a big-screen TV/entertainment system and can afford to set aside \$1,320 toward the purchase today. If your friend can earn 5.0%, how much can your friend spend in four years on the purchase? Round off to the nearest \$1. a. \$1,444 b. \$1,604 c. \$1,764 d. \$1,283.

### Future Value

If you invest \$750 every six months at 8% compounded semi-annually, how much would you accumulate at the end of 10 years? a. \$10,065 b. \$10,193 c. \$22,334 d. \$21,731

### Time value of money problem

Old Alfred Road, who is well-known to drivers on the Maine Turnpike, has reached his seventieth birthday and is ready to retire. Mr. Road has no formal training in finance but has saved his money and invested carefully. Mr. Road owns his home?the mortgage is paid off?and does not want to move. He is a widower, and he wants t

### Calculations for an ordinary annuity vs an annuity due

CASE AMOUNT OF ANNUITY INTEREST RATE DEPOSIT PERIOD (YR) A \$2,500 8% 10YRS B 500 12 6 C 30,000 20 5 D 11,500 9

### Compound interest , present value, future values: What amount will the following investments accumulate? What is the present value of the following future amounts?

Please complete the following calculations showing all work. *Compound Interest - what amount will the following investments accumulate? 1) \$5,000 invested for 10 yrs at 10% compounded annually 2). \$8,000 invested for 7 yrs at 8% compounded annually 3). \$775 invested for 12 years at 12% compounded annually 4). \$

### Various time value solutions: Aaron Brown Corporation

1. On January 1, 2007, Aaron Brown Corporation sold a building that cost \$250,000 and that had accumulated depreciation of \$100,000 on the date of sale. Brown received as consideration a \$275,000 noninterest-bearing note due on January 1, 2010. There was no established exchange price for the building, and the note had no ready m

### Future financial challenges and opportunities at US Airways

This solution provides the learner with challenges and opportunities that US Airways may face in the coming years that would potential require financial management and analysis. Although this solution specifically utilizes US Airways as an example, the concepts and ideas can be utilized to aid in the understanding of current mac

### An Application of the Time Value of Money

Question: Highlight some of the key components of the Time Value of Money. Identify at least one financial application of the TVM employed by each of the following businesses: a. Commercial banks b. Credit card financial service companies c. Insurance companies d. State governments-lotteries e. Retirement plan financi

### Time Value of Money

1. Bozeman's Best Inc. is establishing a pension plan for its sole employee. He will receive credit for 12 years of prior service and is expected to work 18 years until retirement. After retirement, he is expected to collect annual pension payments for 17 years. His current salary is \$75,000 with estimated future pay increase

### Time Value of Money: Compounding and Discounting

1) How much will you have in 5 years if you put \$10,000 into an account that earns 6% annually? 2) What is the present value of \$100,000 you will receive in 10 years if you are using an 8% discount rate? 3) How much will you have in 10 years if you invest \$1,000 a year starting today at an interest rate of 7%? 4) Wh

### Time value multiplier: On May 1, 2004 a company purchased a new machine which it does not have to pay for until May 1, 2006. The total payment on May 1, 2006 will include both principal and interest. Assuming interest at a 10% rate, the cost of the machine would be the total payment multiplied by what time value of money factor? a. Future value of annuity of 1 b. Future value of 1 c. Present value of annuity of 1 d. Present value of 1

On May 1, 2004 a company purchased a new machine which it does not have to pay for until May 1, 2006. The total payment on May 1, 2006 will include both principal and interest. Assuming interest at a 10% rate, the cost of the machine would be the total payment multiplied by what time value of money factor? a. Future value of

### Time Value of Money - Calculating Repayment Period

I acquired an additional business unit for \$310000. The seller agreed to accept annual payments of \$67000 at an interest rate of 6.5 percent. How many years will it take me to pay for this purchase?

### Future Value of a Lump Sum

How do each of the following increase the future value of a lump sum investment made today assuming that all interest is reinvested and the interest rate is also positive: Interest rate Amount of the lump sum Frequency of the interest payments Length of the investment period

### NPV: Doherty Industries wants to invest in a new computer system. The company only wants to invest in one system, and has narrowed the choice down to System A and System B. System A requires an initial cost of \$100,000 and then generates positive after-tax cash flows of \$60,000 at the end of each of the next two years. The system can be replaced every two years with the cash inflows and outflows remaining the same. System B also requires an initial cost of \$100,000 and then generates positive after-tax cash flows of \$42,500 at the end of each of the next three years. System B can be replaced every three years. The company needs a computer system for the 6-year period, after which time the current owners plan on retiring and liquidating the firm. The company's cost of capital is 11 percent. Use either the replacement chain approach or the equivalent annual cash flow approach and show which system should be chosen.

Doherty Industries wants to invest in a new computer system. The company only wants to invest in one system, and has narrowed the choice down to System A and System B. System A requires an initial cost of \$100,000 and then generates positive after-tax cash flows of \$60,000 at the end of each of the next two years. The system

### Value of Money in a Loan Situation

Shanghai Winters, one of BC's biggest customers, has requested a loan with favorable terms. Sheila and Ed decide to offer this customers a \$70,000 five year note receivable. You recommend that since this is your best customer, they offer a 4% interest rate rather than the 7% going rate. Using your knowledge of the time valu

### Time value of money interest rate

4.6) For an interest rate of 12% per year compounded every 2 months, determine the nominal interest rate per (a) 4 months, (b) 6 months, (c) 2 years. 4.11) What nominal interest rate per year is equivalent to an effective 16% per year, compounded semiannually?

### Future Value of a Chicago Bulls Contract

Low Martian wants to invest \$2,500,000 from his Chicago Bulls contract. He has found an investment that will pay 14%. He is not sure of the compounding periods, however. He has asked you to calculate how much he would have after five years if the compounding is done monthly?

### Time value of money and discount rates are examined for lottery winnings.

You just won the lottery that promises to pay you \$1,000,000 exactly 10 years from today. Because the \$1,000,000 payment is guaranteed by the state in which you live, opportunitites exist to sell the claim today for an immediate single cash payment. A. What is the least you will sell your claim for if you can earn the follo

### Professional Workplace Dilemma

Please help so I can write this paper: Prepare a paper analyzing a professional dilemma and values conflict that you experienced before you began your major course of study or during your program of studies at the University of Phoenix. Be sure to complete all three sections of the assignment. a. Describe the experience:

### Cash Budget (Sharpe Corporation) and TVM Problems

Please view the attachment as well to view these questions in proper formatting. Some of the required charts did not copy over well. 1. (Cash budget) The Sharpe Corporation's projected sales for the first eight months of 2004 are as follows: January \$90,000 May \$300,000 February 120,000 June 270,000 March 135,000 Jul

### Interest, value of annuity, mortgage payment

Please see the attached file. 1. Find the simple interest for \$4902 at 9.5% for 11 months. 2. Find the compound amount for \$312.45 at 6% compounded semiannually for 16 years. 3. Find the amount of interest earned by depositing \$12,903.45 at 10.37% compounded quarterly for 29 quarters. 4. Find the present value of \$17

### Present Value of Deposits

You plan on depositing \$10,000 a year in real terms into your investment account for the next 4 years. The relevant nominal discount rate is 7.5 percent and the inflation rate is 4.2 percent. What are these deposits worth in today's dollars?