M2 (RW) Response

NEED RESPONSE – 2 PARAGRAPHS WITH 1 REFERENCE:

ORIGINAL POSTING:

 
Assignment 1: Discussion—Time Value of Money
Time value of money analysis has many applications—both personally and professionally. The calculations can be performed using Microsoft Excel, factor tables, or a financial calculator to help make informed decisions, such as planning for retirement, loan decisions, and capital projects.
The concept of time value of money helps managers value cash flows and assess risk within the organizations.
In this assignment, you will discuss specific situations where the time value of money is applied in personal and professional situations.
Tasks:

Share any professional and personal decisions you made in which the concept of time value of money was utilized and include the following:

The specific decision for which you used time value of money.
The manner in which you applied the concept.
The tools you used to complete the analysis, including the timeline.
An explanation of how using the concept helped you reach a more accurate decision than if time value of money had not been utilized.
Your response should consist of a minimum of 300 words and demonstrate critical thinking and analysis.

Download the MS6014_M2A1_workbook.xlsx template, and using the appropriate Excel financial functions, do the following:

Determine the present value of $75,000 discounted at 6% over 6 years.
Determine the future value of $100,000 invested today at 4% for 5 years.
Determine what annual payment will need to be invested if you have $10,000 today and want it to grow to $100,000 over 20 years at 4.5%.

Copy and paste the results of task #2 into your post underneath your response to task #1.

STUDENT POSTING:

 
It is not an easy task to manage personal finances. However, the time value of money of money has greatly assisted individuals to make difficult financial decisions. I was once torn between making a hire purchase and getting a loan to buy my first car. I did not have enough money to acquire the car on cash basis, but I had enough to cover the hire purchase initial deposit amount and then pay the monthly installments plus interest.
The options presented to me were;

Hire Purchase Option

The Car’s value was $2300 with a deposit of 10% of the value and monthly installments for 3 years and 6.5% simple interest per annum.
In this case, my monthly payments would have been;

Deposit = 10% of 2300 = 230
Therefore, P = 2300 – 230 = 2070, Interest (i) = 0.065, and Time (n) = 3
 = 2473.65
This means I would pay a total of $2473.65 +$230 = $2703.65 at the end of three years in order to own the car, with monthly installments of $68.71.

Loan option

The other option would be to take a loan amount equal to the car’s value and buy the car on cash basing then repay the loan amount in 3 years.
My bank offers personal loans at a rate of 7.5%. The loan amount is $ 2300 to be paid in 36 months. In this case the total amount spent by the end of three years would be;

= 2857.28
Therefore, in this case the total amount paid at the end of three years will be $2857.28 with monthly installments of  . Even though the loan would enable me get immediate ownership of the vehicle, I would end up paying an extra of $153.63 (2857.28 – 2703.65). The monthly payments are also higher than the hire purchase installments. The time value of money helped me get the car on hire purchase and ended up saving $153.63.
Excel Work
Determine the present value of $75,000 discounted at 6% over 6 years.
Present Value
Amount to be discounted
75000
Annual interest rate
6%
Number of years
6
Present Value
($52,872.04)
Determine the future value of $100,000 invested today at 4% for 5 years.
Future Value
Amount invested today
100000
Annual interest rate
4%
Number of years
5
Future Value
($121,665.29)
Determine what annual payment will need to be invested if you have $10,000 today and want it to grow to $100,000 over 20 years at 4.5%.
Annual Payment
Amount invested today
10000
Annual interest rate
4.50%
Number of years
20
Amount to end up with
100,000
Annual Payment
 ($2,323.92)
References
Investopedia – Educating the world about finance http://www.investopedia.com/?viewed=1
Livingstone, J. L., Grossman, T., & Wiley InterScience (Online service). (2009). The Portable MBA in finance and accounting. Hoboken, NJ: Wiley and Sons.

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