Finance
Time Value of Money; Assessing the Value of a Starbucks Bond
The concept of the future value of money and the present value of money are useful when assessing potential investments. The future value of an investment is the value that the investor will expect to receive at some point in the future. If an investor is considering purchasing a Starbucks bond which will pay one $2,000 in a year's time, this is the future value of the bond. As investment takes place with the aim of making money and creating value for the investor they would be unwilling to pay $2,000 today for that bond, as this would not result in a profit. Instead, the investor will need to consider the price they are will to pay today in order to receive the $2,000 from Starbucks after a year, allowing for the passage of time. This is an assessment of the present value, which is discounting the future value to allow for time value of money (Howells and Bain, 2007).
When assessing how much the investment that will mature at $2,000 in a year is worth there are several considerations. The first consideration may be the rate of inflation. Inflation erodes the real value of money; therefore any investment should at least be able to keep pace with inflation (Howells and Bain, 2007). While one cannot be certain what the future rate of inflation will be, it is possible to look at forecasts. One current forecast for the U.S. is a projected rate of 3.2%
(Forecast-chart.com, 2012). Therefore, if an investor wants to make sure that an investment retains its real value; which means that it will buy the same value of goods in 12 months time as it will today, the investment will need to give a return of...
value of money reflects the fact that money diminishes in value over time. A dollar today has more buying power than a dollar tomorrow does. The time value of money holds under conditions where there is inflation. As the price of goods and services rises over time, the purchasing power of a dollar diminishes over time. The time value of money concept in finance reflects this reality by translating
Finance Assessing a Potential Investment in Facebook Under the concept of time value, money today is worth more than the same amount in the future (Nellis and Parker, 2006). This is over time, inflation will erode the value of money and in a years time $100 will buy less than it will buy today. If Facebook is offering a $100,000 bond, for one year, the investor, wanting to make a profit and
Furthermore, the assumed 'cooperation' of these assets when put in portfolio maybe perceived differently by the manager than the reality will be which can lead to losses. On the difficulties side, first of all, the opportunity cost of capital is the hardest assumption to be drawn. Opportunity cost of capital is the expected rated of return which could be achieved from investing in a business endeavor with the same risk.
However, there are also some disadvantages with this assessment tool. The assessment is based on projections, if there are any divergences from those projections there can be a significantly different outcome. The net present value also has an inherent bias towards projects which provide higher short-term returns, due to the compounding effect of the discount applied to returns in later years. The use of NPV may also be difficult
Finance To evaluate the project for T-Mobile, we need to take into account the present-day value of future cash flows. This means that the future cash flows need to be discounted. The case example gives both the future cash flows and the discount rate for T-Mobile, which is the company's cost of capital. The net present value calculation relies on the following equation: PV of CF = CF1 / (1+r) 1 +
Value of Money My SLP company is Wal-Mart. For me I would pay less than $100,000 for this bond, because I know that the $100,000 face value of the bond is not going to have the same purchasing power in a year as it does today. The value of the bond will therefore be less than $100,000, based on the prevailing interest rate. Wal-Mart is a company with a high
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