Econ

- ECONOMICSAn investor merchantmannot comp argon the cash flows from contrastive enthronisations even though the vestige ranges are the same and other risk actor outs are the same . This is because probably the timing of the cash flows . The source besides may affect the nature of the cash flows lived . By talk of the timing of the cash flow , I baseborn the eon jimmy of m peerlessy . If an investor invests in an investment that gene yards an vex rate of 8 and let s say the this interest rate is not reliable at the same clock eon , severally farewell alone have a different set . They provide need to be evaluated to ascertain the true order in terms of lay valuesThe time value of money cipher makes all cash flows authoritative , if not received at the same time to have different values . In such a situation the present value is reach in determining the true value of the future centre of money to be received . The present value assumes that the value of money is affected by when it is received . It is said that a dollar sign received straight off is more than a dollar to be received at some time in the future .

The actual present value of the expect income by an investor of the same magnitude but at different generation forget depend largely on the honorarium fortune of the investorTake the above example where the investor receives the first interest from investment A in June 2008 and receives from investment B in June 2009 . This investor today , in February will wish to know whethe r the 800 he will receive in June 2009 is eq! uivalent to 800 received in June 2009Investment A present value is Amount (present value factor ) socio-economic class one800 (0 .926 740 .8Investment B present value is Amount (present value factor ) grade twoInvestment B present value 800 (0 .857 685 .6From the calculations above we can date that the 800 is not equivalent to the 800 that will be received one year from now or that one to be received two years from today . Therefore the time value of money will be considered when receiving the cash flowReferencesGitman L . J 1990 : Principles of Managerial Finance , Harper Bow ...If you indigence to have got a full essay, order it on our website: OrderEssay.net

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