Corporate Finace Calculations

TUI UNIVERSITY

Daniel J. Bouchee

FIN 501

Strategic Corporate Finance

Module 2 Case Study

Dr. Michael Garmon

7 Aug 2010

Finance is an important part of modern life and there are benefits for almost everyone to understand it better. Credit and debt issues are not new concepts and neither are the many ways to circumvent these problems, however a large percentage of individuals and companies drift into financial danger every day. Financial education and the concepts of solid money management have been taught for a long time. This continued education is needed to help citizens avoid financial problems.

The Time Value of Money concept is important in corporate finance because it is the basic fact that money today is worth more than money in the future. The essential concept behind NPV is that a dollar in the future is generally worth less than a dollar today because people generally prefer present consumption to future consumption, inflation decreases the value of currency over time, investment of today's dollar can increase its value, and any uncertainty or risk associated with future money reduces its value.[1] Present value is the worth of money on a given date of a future payment or series of future payments, discounted to indicate the time value of this money. Knowing how and when to allocate money is in the best interest of making more money. Everyone is out to maximize profits and knowing how to handle this is a major reason to teach the present value concepts first in corporate finance courses.

Calculations for future value formula:

FV = PV (1 + i x t)

FV = Future Value

PV = Present Value

i = Interest rate

t = time

$300 if invested for five years at 5% interest rate

FV = 300 (1 + 0.05 x 5)

FV = 300 (1.25)

FV = $375.00

$900 if invested for three years at 9% interest rate

FV = 900 (1 + 0.09 x 3)

FV = 900 (1.27)

FV = $1143.00

$7500 if invested for seven years at a 5% interest...