Principles of Corporate Finance 3rd Edition

Question: Describe about the Principles of Corporate Finance 3rd Edition? Answer: Complete the following table by inserting your responses, in at least 30 words to the questions. Cite any sources you use. Define the time value of money. The central idea of time value of money is that the money in the present is dearer than money in the future. This is primarily due to the fact that interest can be earned on money (Brealey, Myers Allen, 2008). Provide a real-world example for the time value of money. Suppose I purchase a car on monthly installments. The vendor typically charges me some interest and thus I have to pay more amount in totality than I would have to if I paid the whole amount at one go today. Thus the incremental interest is due to the time value of money. Why is time such an important factor in financial matters? This is an important aspect in financial matter since there is an opportunity cost involved in terms of interest that could be earned on money and thus it needs to be evaluated whether adequate compensation is being given for this or not. How would you use the time value of money to your financial benefit? This concept would be utilized for financial benefits by ensuring that the returns earned on the investment should exceed the inherent opportunity cost due to time value of money (Brealey, Myers Allen, 2008). Part II: Complete the following table by calculating the ratios. Present Value Amount Compounding period Rate of interest Present value $150,000 Annual 6% for 10 years $ 83,759.22 $85,000 Annual 4% for 15 years $ 47,197.48 Internal Rate of Return Initial cost of investment Periods of useful life Estimated annual net cash inflow generated Look-up table value Rate of interest $75,000 7 $14,406 8% 8% $56,000 15 $8,222 12% 12% Payback Period: Assume there are no income taxes for both scenarios. Purchase price of equipment Period of useful life Annual revenue generated per year Operating costs associated with revenue Depreciation expense per year Payback period result $550,000 10 years $100,000 $32,000 $55,000 8 years $350,000 10 years $80,500 $36,000 $35,000 7.87 years References Brealey, R., Myers, S. Allen, F. 2008, Principles of Corporate Finance 3rd edition, New York: McGraw Hill Publications