¶ … pay back period" is the length of time that is required to cover the cost of an investment. I would use this in order to make a good financial decision.
The calculation that I would do is as follows:
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For instance, if a project costs $100,000 and is expected to return $20,000 annually, the payback period will be $100,000 / $20,000, or, in other words, $20 per 5 years.
The better investment is the one that has the shorter pay back period.(Investopeida)
Another tool that I would use to measure the time value of money to assess long-term projects is Net present value (NPV). Businesses use it to measure the value of a time series of cash flows both incoming and outgoing. For instance, when all types of cash flows are incoming (such as bonds or coupons), and the only cash outflow is the purchase price, the NPV is the present value of future cash flows minus the purchase price (which has its own present value).
NPV measures the amount of cashflow once financing charges are met.
I would calculate NPV by taking the input of a series of cash flows as well as considering a discount rate or curve, and the output is the price.
Advantages and disadvantages of debt financing
Some people consider debt financing in order to start a business. This will help them avoid investors so that they can run and own the business themselves making decisions independently of others who have vested interest in business.
The advantages of debt financing are the following:
Owner can make decisions independently of others and is responsible for own business. He alone keeps profits
The interest that business owner pays on loan is tax-deductible which means that his tax liability is lowered every year. His interest is usually based on the prime interest rate.
He does not need to share profits with lender of money. All that is required is that he repays loans in timely manner.
Business owner may be applicable for Small Business Administration loan. This...
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