Time Value of Money 3
P= $ 159,009.15
Time value of money is widely used in the commercial or financial sector. A good
example is in a mortgage. Payments towards the same are made in such a way that at the end
of a specified time limit, a certain amount of money should have been paid in exchange of a
facility, usually a house, which best fits annuity payment.
In this regard, the specific business decision that the organization made is the strategic
decision. These include making choices on the matters that directly touch on the survival of
the institution. For instance, they decided to make periodic savings to pay off the liability that
the business would face in ten years' time. By knowing that they required two million dollars
at the end of one decade, it was not just a matter of setting aside contributing two hundred
million annually, but instead, an amount that would earn interest and give them the required
amount when time expires. Of course, the concept of time value of money was applied,
which explains that the cost of one dollar today, can only equate to a higher amount in the
future since it loses value (Xingyun, 2015).
While making a strategic decision, a manager should also have in mind, other factors like
competition and government policy. The former is vital in that making savings could affect
the liquidity of the firm and make other competitors in the industry to have a comparative
advantage. Government policy, on the other hand, is vital especially in circumstances where
there are government regulations that monitor the sustainability of a firm, for example, in a
listed company (Course, 2015).