Solving Present Value and Future Value Problems You are the CFO (Chief Financial

Question

Solving Present Value and Future Value Problems You are the CFO (Chief Financial Officer) of ABC Golf Equipment Corporation, a small company that sells golf equipment. Mr. Hillbrandt, the new CEO (Chief Executive Officer) has a marketing background and is trying to learn more about the financial side of running a business. He wants your help and asks for an introduction to the concept of time value of money. The value of a typical corporate bond is the present value of an annuity plus the present value of a lump sum. Thus, if an individual does not understand how to calculate the present value of a lump sum or the present value of an annuity, it is difficult to determine the value of a typical corporate bond. Thus, in this case assignment, you will work through a variety of time value of money problems to illustrate the idea to the CEO.

Explanation / Answer

The time value of money works in such a way that it presents the value of the future cashflow to the present date for that reason it is discounted as at an appropriate rate. The reason behind such discounting is that if the same present value money is invested today, then in the future the value would be equal to the future cashflow at that rate of interest. So, the discounting rate is representative of the cost of opprtunity.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.