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Principles of corporate finance
In a Word document, upload your answers to the questions below. Show all your work. Even if your final answer is wrong, you can receive partial credit for showing all of your steps and demonstrating a good understanding of the time value of money.
Read the information in the background material, look for more information, and then write a 5-page (excluding title page and references) report responding to the following questions/tasks:
1) Provide a brief definition of time value of money in your own words.
2) 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 or three paragraphs.
If you do not know how to use a calculator for these calculations, use the tables to answer questions 3, 4, 5, and 6.
Brealey, R. A., Myers, S. C., & Allen, F. (2005). Principles of corporate finance, 8th Edition. The McGraw-Hill. Retrieved May 2012 from http://jcooney.ba.ttu.edu/fin3322/Brealey%20Files/Appendix%20A%20-%20Present%20Value%20Tables.pdf
3) Calculate the future value of the following:
a. $120,537.19 if invested for three years at a 3% interest rate
b. $337,891.22 if invested for seven years at a 6% interest rate
c. $420,891.12 if invested for 11 years at an 12% interest rate
d. $525,520.22 if invested for 14 years with a 15% interest rate
Use Table 2 [http://jcooney.ba.ttu.edu/fin3322/Brealey%20Files/Appendix%20A%20-%20Present%20Value%20Tables.pdf]
4) Calculate the present value of the following:
a. $262,126.17 to be received six years from now with a 4% interest rate
b. $325,003.21 to be received eight years from now with a 7% interest rate
c. $421,567.35 to received 10 years from now with an 10% interest rate
d. $631,500.05 to be received 12 years from now with a 13% interest rate
Use Table 1 [http://jcooney.ba.ttu.edu/fin3322/Brealey%20Files/Appendix%20A%20-%20Present%20Value%20Tables.pdf]
5) Suppose you are to receive a stream of annual payments (also called an “annuity”) of $525,891.12 every year for seven years starting at the end of this year. The interest rate is 15%. What is the present value of these seven payments?
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 $637,891.24 at the end of each year for six years. You are depositing these payments in a bank account that pays 12% interest. Given these six payments and this interest rate, how much will be in your bank account in six years?
If you do not know how to use a calculator for these calculations, use the table found on http://www.principlesofaccounting.com/ART/fv.pv.tables/fvofordinaryannuity.htm
7) What do you perceive you have learned in the Module 2 Case Assignment? Which of the following learning outcomes do you feel you have mastered?
• Make basic calculations concerning present and future value.
• Understand and discuss the concepts of present and future value.
Provide a brief evaluation of the Case Assignment.
Note: Assignment will not be accepted without proper citations and references. You must use the sources from the background material together with the sources you find on your own. It is also required that you answer all the questions.
Econedlink.org (2012). The time value of money. Retrieved May 2012 from http://www.econedlink.org/lessons/index.cfm?lesson=EM37
Studyfinance.com (2012). Time value of money: Self paced overview. Retrieved May 2012 from http://www.studyfinance.com/lectures/timevalue/index.mv
Biger, N. (2008). Explanation of present values and net present values. Retrieved May 2012 from http://cdad.trident.edu/Presentation.aspx?course=56&term=92&presentation=150
For the following link make sure to check out the sections on present and future values of annuities as these sections will help you with the Case Assignment:
Getobjects.com (2002). Future value. Retrieved May 2012 from http://www.getobjects.com/Components/Finance/TVM/fv.html
You might also want to read Chapter 8 of the following textbook:
Ramagopal, C. (2008). Financial management. New Age International.
The following videos are useful to understand and learn present value of money:
Khanacademy.org (2012). Introduction to present value: A choice between money now and money later. Retrieved May 2012 from http://www.khanacademy.org/video/introduction-to-present-value?playlist=Finance
Khanacademy.org (2012). Present value 2: More choices as to when you get your money. Retrieved May 2012 from http://www.khanacademy.org/video/present-value-2?playlist=Finance
Khanacademy.org (2012). Present value 3: What happens when we change the discount rate? Retrieved May 2012 from http://www.khanacademy.org/video/present-value-3?playlist=Finance
Khanacademy.org (2012). Present value 4 (and discounted cash flow): Let’s change the discount rates depending on how far out the payments are. Retrieved May 2012 from http://www.khanacademy.org/video/present-value-4–and-discounted-cash-flow?playlist=Finance
Harper, D. (2009). Corporate Bonds: An introduction to credit risk. Retrieved May 2012 from http://www.investopedia.com/articles/03/110503.asp#axzz1toL7PDrX
• Describe the purpose of the paper and provide a conclusion. An introduction and a conclusion are important because many busy individuals in the business environment may only read the first and the last paragraph. If those paragraphs are not interesting, they never read the body of the paper.
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