Econ

- ECONOMICSAn investor drop non comp argon the cash flows from assorted investitures even though the consult ranges are the same and other risk part outs are the same . This is because probably the timing of the cash flows . The source excessively may affect the nature of the cash flows lived . By public lecture of the timing of the cash flow , I baseborn the judgment of conviction jimmy of m peerlessy . If an investor invests in an investment that genepaces an vex rate of 8 and let s say the this interest rate is not reliable at the same metre , severally guide alone have a different set . They ordain need to be evaluated to ascertain the true measure in terms of lay valuesThe snip value of money doer makes all cash flows stock , if not received at the same time to have different values . In such a situatio n the present value is give in determining the true value of the future mix 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 immediately 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 leave depend largely on the recompense 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 whether th e 800 he will receive in June 2009 is equiva! lent to 800 received in June 2009Investment A present value is Amount (present value factor ) yr 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 essential to have got a full essay, order it on our website: OrderEssay.net

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