The Time Value of Money

TUI University
Paul A. Krasulski
Module 2 Case Assignment: Time Value of Money
FIN 501: Corporate Finance
Dr. Robert Cohn
November 7, 2011

Purpose: the purpose of this paper is to demonstrate a thorough understanding of the concepts associated with the time value of money (“TVM”); with emphasis in solving equations for present and future value.
Methodology/approach: for the case assignment, we will consider the time value of money through the following questions:
  1. Why is the concept of present value so important to corporate finance? (2 - 3 paragraphs)
  2. Given a specific data set; how do we calculate present and future value?
  3. What do you perceive that you have learnt from the Module 2 case assignment?
Findings:   if “adding value to the firm” is the key role of corporate finance, and understanding how to predict and/or recognize “value” (in investments, capital budgeting, etc…) is only possible with a thorough understanding and ability to apply TVM principles; it follows then that TVM is the de facto foundation for corporate finance. This can and should apply to personal finance as well.
Conclusion: (including that which we have learnt in Module 2) By researching the time value of money during the Module 2 Case Assignment; my biggest takeaway here is that there is indeed a necessity to understand the time value of money as this concept is just as essential to personal finance – and every day financial decisions – as it is to corporate finance.  
Paper type: Module 2 Case assignment

What is the time value of money (“TVM”) and why is it so important to corporate finance? What is the goal of corporate finance? Moreover, what is the financial goal of a firm? What are financial decisions and how are they made? Does TVM give us a better understanding of how to make sound financial decisions? Conversely, does TVM help us to recognize and/or avoid poor financial decisions?  
Let’s analyze the time value of money as...