Discussion | Business & Finance homework help
- Describe the role time value of money plays in corporate finance.
Time value of money (TVM) is also known as discounted cash flow (DCF) analysis. Time value of money is broken down into different concepts. Time Value Money demonstrated how the dollar paid or received at two different points in time are different. First is Time Line Value analysis that provides the present value and assumes the future value. Second is Future Value analysis demonstrates how a dollar today is worth more than a dollar in the future because of earned interest attached. This is the concept of going forward process that demonstrates the present value (PV) to future value (FV) called compounding (Ehrhardt & Brigham, 2023, Chapter 4 pgs.137). Third is Present Value which is the amount if the value on hand today would grow to equal the given amount in the future, this also called discounting which is also the reverse of compounding (Ehrhardt & Brigham, 2023, Chapter 4 pgs.146). Fourth is annuity which is a series of payments of a fixed amount for a specified number of periods. The time value of money in corporate finance supports in analyzing cash flow over time, understand the true value of the company’s cash flow and support decision making to support maintaining profitable.
Reference:
Ehrhardt, M. C., & Brigham, E. F. (2023). Corporate Finance: A Focused Approach (8th ed.). Cengage Learning US. https://nu.vitalsource.com/books/9780357714713 Post by classmate 3(Respond to question 5) For this week's post, I chose to answer questions 1, 3, and 5