The time value of money concept is one of the 3 major principles of the study and practice of financial management. It is used to evaluate potential investments, determine a rate of return on a project, calculate the required payments on a loan or annuity, and estimate a future value of funds currently invested and the present value of funds to be received at some future date. It is imperative that managers at all levels of business have a working knowledge of this topic. In your first task, you have been asked to engage your colleagues in a detailed and documented discussion about the time value of money concept: what it is, why it is important, how it is used, and generally, how the applications to single and periodic payments are computed using various calculation methods and formulas.
In your initial post, identify and recommend at least 1 credible Web site that an investor can visit to find the current market value of market indexes such as the Dow Industrial Averages, and address at least 3 of the following:
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- What is the discounted cash flow concept, and why is it essential for financial managers to understand and employ this important concept?
- What are the methods associated with evaluating single or periodic payments, and what is at least 1 application of each?
- Discuss the different methods that can be used to calculate these amounts, and explain how at least 1 of these models can be used.
- How can the time value of money models or formulas be used to determine the rate of return for an investment or the time it will take for a current sum to grow to a desired future amount?
- Discuss the “Rule of 72” and how it can be used to estimate how long it takes for money to double at various rates of return.
- Identify and recommend at least 1 credible Web site that an investor can visit to find the current market value of market indexes such as the Dow Industrial Averages.