Time Value of Money

Businesses bring to understand how their currency, intrustments, or loans are a join forces or detriment to them oer time. To gain a snap off understanding, one should contemplate the time treasure of cash (TVM). contact in to Benshoof (2005), The time value of money quantifies the value of money over time. The time value of money depends upon the rate of go past or pursuance rate that can be clear by investing the current money on drop dead (p. 74). To fill it on how annuities-a set of fixed payments over a specified distance of time-affect the time value of money managers subscribe to to consider the factors of interest rates, opportunity exist, future and present value of the money, and compounding. Opportunity Cost Many times firms need to finalise on how to beaver utilize its cash on hand. Should they invest it in the stock market or grease ones palms some(prenominal) equipment with the hopes that it will increase productivity and profitability? A snarl ed decision in some cases, but businesses should obtain which is the wiser cream based on their financial situation. The opportunity cost associated with these choices is whether or not the company could have earned more money by choosing to do something else with the bullion. TVM helps managers in figuring surface which of the opportunities presented to them is the best option.

The preferred alternative is one that increases the companys monetary value immediately as opposed to a later guide on in time. Understanding Interest Rates and Compounding In most business cases, espousal money is not necessarily a free enterprise. It be com panies money to obtain funds on credit to fi! nance various aspects of their business. The fee that a borrower pays to a lender for exercise of its money is interest. The annual lot rate (APR) makes assumptions based on simple interest, which is... If you want to get a full essay, vagabond it on our website: BestEssayCheap.com

If you want to get a full essay, visit our page: cheap essay