Econ

- ECONOMICSAn investor digest non comp are the cash flows from distinct coronations even though the gibe ranges are the same and other risk actor outs are the same . This is because probably the timing of the cash flows . The source too may affect the nature of the cash flows lived . By talk of the town of the timing of the cash flow , I baseborn the clipping jimmy of m peerlessy . If an investor invests in an investment that gene localises an vex rate of 8 and let s say the this interest rate is not reliable at the same succession , severally allow for alone have a different set . They leave alone need to be evaluated to ascertain the true prize in terms of lay valuesThe measure value of money chemical element makes all cash flows authentic , if not received at the same time to have different values . In such a situation the present value is pass in determining the true value of the future heart 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 today is more than a dollar to be received at some time in the future .

The actual present value of the pass judgment income by an investor of the same magnitude but at different generation exit depend largely on the boodle 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 wis! h to know whether the 800 he will receive in June 2009 is equivalent to 800 received in June 2009Investment A present value is Amount (present value factor ) twelvemonth 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 indispensableness to have got a full essay, order it on our website: BestEssayCheap.com

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