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Essay Available:
Pages:
2 pages/β‰ˆ550 words
Sources:
2 Sources
Style:
APA
Subject:
Health, Medicine, Nursing
Type:
Essay
Language:
English (U.S.)
Document:
MS Word
Date:
Total cost:
$ 8.64
Topic:

Time Value of money

Essay Instructions:

You were selected as the new Chief Financial Officer of Acme Medical Center, a 1,000-bed academic medical center in the suburbs of a city with a population of over 1.8 million. The hospital board recently decided to investigate ways to increase revenues. The facility has the benefit of different revenue streams including patient revenue and money from investments. The hospital recently sold property for $300,000. The hospital board wants to invest $70,000 at 5% in an ordinary annuity and receive annual payments of 10,000 over the next five years. What is the future value of this ordinary annuity investment? The board is considering other options for investing the remaining money. They want to double their investment of $70,000 over the next 12 years by using conventional securities with a projected return of 6%. Does the present value of the investment indicate that this is possible? Case Assignment Problem Questions: 1.Discuss the concept of time value of money. What is it? How is it used? 2.What is an ordinary annuity investment? What are the advantages and disadvantages of this method? 3.Calculate the future value of this ordinary annuity investment in this scenario? Be sure to show your work. 4.Calculate the present value of the investment and indicate if it is possible to double the money? ONLY 5-10% OF PAPER CONTENT QUOTED MATERIAL

Essay Sample Content Preview:

Time Value of Money
Student’s Name
Institutional Affiliation
Time Value of Money
Time value of money is the basic theory of financial management that identify that the dollar that one is holding is greater in value than a reliable promise to receive the equivalent amount at a future date. This concept explains that the value of money changes as time changes and, therefore, an investor needs to ensure that he obtains some earning from that money to be received in the future. In other words, money that individuals have now is worth more than the same amount to be received in future due to its potential earning capacity. This core principle of finance holds that as far as money can earn interest, any amount of money is much worth the sooner it is received (Brigham et al., 2013).
The concept of the time value of money allows people to determine and compare the value of the future payment to warrant the appropriate financial decisions. To determine the value of future money, five figures are essential, interest rate, the present value, future value, number of times dividend or interest payments are made and payments (Bhat, 2008). Through this concept, an investor determines whether it is worth receiving money now or rather wait to obtain the same amount in the future.
Ordinary annuity investments are investments that make a series of equal payment that are made at the end of each period. The payments in such investments can be made as frequently as every day. In practice, ordinary annuity is made monthly, semi-annually, quarterly or even annually. An example of such investments includes bond issue. The bondholder receives returns (interest income) from the bond issuer in order to compensate for the time and sacrifice for shifting money from consumption.
In the determination of future value, ordinary annuity uses the amount of the monthly paym...
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