Time Value Management
Capital Allocation Decisions
Time values of money include present value and future value and are very similar in the way they work together, but there is a difference. The difference between the two depends on time. The money given today differs from money given years later because of the interest that accrues (WikiAnswers, 2008).
Present value is the value of money today, without any interest to make it grow. The actual value of a lottery prize is a great example to use to fully understand the concept of present value. If the lottery prize is $1 million, it is not worth that full amount if it is set up to pay the winner $50,000 a year for twenty years with a percentage rate of 10 percent added on to it. If the first payment is paid immediately, the present value of that prize is only $468,246 (Henderson, 2002) Future Value is the value of that investment over time, after interest has been gained and can be expressed as FV = PV (l + i) n (Block & Hirt, 2005).
An annuity is a......
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