2024 – The time value of money concept holds that a dollar received today is worth more than a dollar received

The time value of money concept holds that a dollar received today is worth more than a dollar received in the future. If the present value of cash inflows is greater than or equal to the present value of cash outflows (i.e., the net present value is greater than or equal to zero), the investment provides a return at least equal to the discount rate (the minimum required rate of return) and the investment is acceptable. The internal rate of return is the actual yield, or return, earned by an investment. In this week’s discussion, you will address the time value of money as used in the net present value method and the internal rate of return methodology of evaluating capital investment decisions. You will analyze specific factual scenarios related to these concepts in this week’s discussion.

 

Please respond to all of the following prompts in the class discussion section of your online course:

 

Assume you are the CFO of a company of your choice. Provide an example of a long-term capital asset that the business would need to operate and/or grow its business. Following the example on page 162 in ACCT2 for Bud and Rose’s Flower Shop, come up with your own example of a net present value analysis.Williams and Park Accounting Practice is considering investing in a new computer system that costs $9,000 and would reduce processing costs by $2,000 a year for the next six years. Calculate the internal rate of return using the time value of money charts located at the end of the Review Cards for this chapter.In your personal experience, have you seen a net present value calculation used? Under what circumstances? For what purpose? Explain.