Present and Future Values, and Expected Returns

BUS 401 Principles of Finance

Instructor:

February 29, 2016

Present and Future Values, and Expected Returns

Critically reflect on the importance of present and future values.

This week started rough for me but while reviewing the material for this week’s lesson I learned the importance of the present value (PV) and future value (FV). PV and FV are related in a sense because they both represent the financial worth of the money at a given time. For starters, present value is the current financial worth of money at that moment. In contrast used to increase a likely return profit. The future value is the financial worth of value of the items at a particular time. In contrast used to measure the expected amounts of money that a given quantity of the cash that will be worth at the available time. Furthermore, FV assists in investment decisions when determining the amount of money by calculating the financial value of the money. The time value of the money is an indication that the money available now is worth more than it would be on the forthcoming date due to the potential money making capacity.

What factors must be considered when calculating present and future values?

Calculating PV, the factor must include discounting because discounting reveals the time value of the investment and any liabilities occurs along the way with the investment. The use of present value in the calculation of money provides future value as well for the investor. Time value of money plus location correlates the amount of cash accepted. Please review the below example:

NPV = FC (1= i) – n

FC = Net value of future cash flows

i = discounting rate

n = number of years

Managers are obligated to make the investments that are more than the expenses they have experienced. Having an understanding