Question

Assignment Details

The time value of money calculations found in the Connect content covered the core math related to the concept. Yet, the time value of money is explicitly connected to borrowing and saving. Knowing how to determine the time value of money by calculating present and future value can help with decisions that can affect a business’s long-term financial health.

• Describe how the time value of money impacts the terms of a business loan.
• Explain how the time value of money plays a factor in long-term financial decisions.

Answer 1

So, the TVM (Time value of money) is an important concept in the financial decision. It afects the the terms of the business loans in one or more ways. It the the comparision of value of money in hand relative to value of money we will get or pay at the future date. In a business loan, the principal amount will have to be paid along with interest part. So, a borrower will always want it to be lower than the present worth of the loan if not then it will incur a loss. So, every business loan seeker want value should be less at the time of repayment.

It also plays a role in long-term financing decision. The decision should be as per the shareholders wealth maximisation. If any decision is not supporting this objective then the firm will face dufficulties and it can be measured by the TVM or in other words the relative worth of the two cash flows. So, it also affects the long term financial decisions.