Time Value of Money

Running head: Time Value of Money 1
Time Value of Money
Student’s Name
Institutional Affiliation:
Time Value of Money 2
Part 1
a) In the determination of the present value of the liability which is supposed to be 2 million
in 10 years, we use present value interest factor (PVIF) at a discount rate of 5% for ten
  
  
Present Value of Annuity =Future Value / PVIFA
= 2,000,000/1.628894627
= $ 1,227,826.51
b) When money is payable at the end of each year, it is called ordinary annuity. As time
goes, interest is earned on savings already made from year to year. Thus, the first amount
saved will earn interest for nine years while the next will earn it for the next eight years.
It implies that the last amount saved will not earn any interest because money is saved at
the end of each year. According to Xingyun (2015), the future streams of savings that
need to be made at the end of each period is obtained as follows:
Where P= amount of each payment of annuity, PV= present value of annuity, r= interest rate, and
n= the number of periods
Time Value of Money 3
P= $ 159,009.15
Part 2
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).
Time Value of Money 4
Course, I. D. (2015). Strategic decision making.
Xingyun, P. E. N. G. (2015). Time Value of Money. World Scientific Book Chapters, 49-70.

Place new order. It's free, fast and safe

550 words

Our customers say

Customer Avatar
Jeff Curtis
USA, Student

"I'm fully satisfied with the essay I've just received. When I read it, I felt like it was exactly what I wanted to say, but couldn’t find the necessary words. Thank you!"

Customer Avatar
Ian McGregor
UK, Student

"I don’t know what I would do without your assistance! With your help, I met my deadline just in time and the work was very professional. I will be back in several days with another assignment!"

Customer Avatar
Shannon Williams
Canada, Student

"It was the perfect experience! I enjoyed working with my writer, he delivered my work on time and followed all the guidelines about the referencing and contents."

  • 5-paragraph Essay
  • Admission Essay
  • Annotated Bibliography
  • Argumentative Essay
  • Article Review
  • Assignment
  • Biography
  • Book/Movie Review
  • Business Plan
  • Case Study
  • Cause and Effect Essay
  • Classification Essay
  • Comparison Essay
  • Coursework
  • Creative Writing
  • Critical Thinking/Review
  • Deductive Essay
  • Definition Essay
  • Essay (Any Type)
  • Exploratory Essay
  • Expository Essay
  • Informal Essay
  • Literature Essay
  • Multiple Choice Question
  • Narrative Essay
  • Personal Essay
  • Persuasive Essay
  • Powerpoint Presentation
  • Reflective Writing
  • Research Essay
  • Response Essay
  • Scholarship Essay
  • Term Paper
We use cookies to provide you with the best possible experience. By using this website you are accepting the use of cookies mentioned in our Privacy Policy.