Introduction

1. What is the discounted cash flow concept, and why is it essential for financial managers to understand and employ this important concept?

DCF (discounted cash flow) is a tool for decisive the current value of expected cash flows in coming years. This method is implemented to calculate the price of an outlay. When using the DCF approach, a discount rate is useful to each and every periodic cash flow which is formed from a firm’s capital cost. When we multiply this discount by every expected cash flow, we get a sum that equals the current value of all the upcoming working capitals (Carlon 2019).

When we calculate the discounted cash flows for several investment opportunities, we can pick the one that yields the largest discounted cash flows. This notion can be applied to determining the price of a possible purchase, stipend investment, or net investment purchase.

The assumption behind the net present value method is that funds raised now are better than money received later. It’s because anyone who agrees to be compensated monetarily revokes the opportunity to invest that money at the moment now. The only trying to convince anyone to agree to late payment is to pay them, which is defined as interest revenue.

2. What are the methods associated with evaluating single or periodic payments, and what is at least 1 application of each?

The cost of capital concept has been one of the three key pillars of economic strategy formulation and execution. It’s used to assess new investments, estimate the rate of interest on a project, compute loan or annuity pay-outs, and forecast the future value of money previously invested and the current value of assets to be received at a later date (Carlon 2019). This is a matter that all executives at all levels of the company should be well-versed in. The first goal is to lead a comprehensive and documented conversation with our co-workers about the cost calculation concept, covering what that is, why it is crucial, how it is utilized, and how individual and recurring pay-outs are evaluated employing several calculating techniques and equations.

3. Discuss the different methods that can be used to calculate these amounts, and explain how at least 1 of these models can be used?

Annuities are often used to enhancement traditional retiree income sources such as Societal Safety and allowances. Tax-advantaged development is a common occurrence. We didn’t have to pay income taxes on annuity income until we started receiving disbursements or monthly repayments.

Bond – Interest-rate risk is the likelihood that the price of the bond will fluctuate in response to the changing interest rates. This risk is real since the market price of a bond is made up of the present value of interest charges and the repaid principal at maturity (Carlon 2019). As a result of this analysis, the current bond price and the current rate have an inverse relationship.

4. 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 the desired future amount?

The time value of the cash formula can be used to predict the earning potential of capital in its current value. It comprises the following factors:

• Latest (or contemporary) value
• Value of future
• Rate of interest, or return on capital
• Amount of years
• Number of compounding periods

$840/(1+r) = $800

The rate of interest would have to be 5% for $800 to earn $40 per year

The baseline $800 can rise to $1,021.03 in 5 years in this situation.

Consequently, it is found that some investment opportunities, on the other hand, have greater compounding times than some others.

“An investment with similar span and interest rate but more compounding periods will be more beneficial to us since our money can work harder,” Cheng, a retirement revenue certified specialist, explained.

Assume a five percent monthly compounded bank account. This computation can be used to determine the future value of the money with the possibility of several compounding periods:

FV = 800 x [1 + (.05 interest rate / 4 periods)] ^ (4 periods x 5 years or term)

Due to the quarterly compounding periods, we might have $1,025.63, or $4.60 more in the next five years. The time value of money can allow us to make economic choices based on the tolerance for risk and investment opportunities.

5. 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?

The principle of 72 is a simple formula to calculate how long it takes for an investment just double at a fixed annual rate of interest. Consumers can get a general estimate of how long it will take for the original investment to be double by calculating 72 by the annual rate of return.

It’s a technique that one can use as a trader to evaluate whether a project or investment can double the money rapidly enough to be beneficial (Pucheta-Martiinez . & Garcia-Meca 2019). We will comprehend the impact of interest compounding when you see how rapidly the funds could double.

The most common instance of the principle of 72 does not necessitate the use of a computation: When we divide 72 by 10, we get 7.2. This implies that the money can double every 7 years if we earn a 10percent fixed annualized return.

6. 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?

Yahoo! Finance is the most prominent financial site in the U. S., with 71 million unique visitors. It is considered as being one of the finest stock markets providing public. A lot of information on this page is just unmatched. Yahoo Finance is a main source of visitors for so many of the websites on the list, such as Seeking Alpha, and Zacks. Its range of stock research instruments makes it a good choice for numerous benefits (Yahoofinance 2022).

For the youthful trader, Yahoo Finance’s market data segment is also another excellent start. All we have to do is go to the Marketplace tab on the homepage page and select the section we want to look at. This section contains all from equity funds to bitcoins to commodities to US bonds and Treasury.

References

Carlon, S. (2019). Financial accounting: reporting, analysis and decision making. 6^th ed. Milton, QLD John Wiley and Sons Australia, Ltd

Pucheta-Martiinez, M. & Garcia-Meca, E. (2019). Monitoring, corporate performance and institutional directors. Australian Accounting Review, vol. 29, no. 1, pp. 208-219. doi:10.1111/auar.12262

Yahoofinance. (2022). Yahoo finance About. Retrieved from https://finance.yahoo.com/