Financial Analysis for Managers II Essay Example | Topics and Well Written Essays - 1000 words

Financial Analysis for Managers II - Essay ExampleIt is a fixed amount paid on annual terra firma (Myers & Allen, 2005). This amount might be constant for a certain period of time or whitethorn need a steady trend for just about time and may fluctuate otherwise. The annuities and the time tax of money are related and affected by certain pointors. These are as followsInterest evaluate are the prevailing charges of availing the facility of the capital that might have been invested in an interest generating instrument or a bank account. The interest rates of locomote loans and paying on the deposits are different and that the difference is actually the monetary reward of utilizing that capital. However, the actual value of money, even when the principal amount is added up with the lend interest amount received as an annuity, is normally different from what it was at the time of blocking that money into the respective reserve under question. This may have a different affect on th e compounded interest approach. Since the interest is compound, therefore it yields a higher amount at each step and so even the actual value of the total of that amount might be more than the amount actually invested depending on the terms, policies and interest rates.This introduces the concept of the donation value of future payments and/or income(s) that are expected to be received (Myers Allen, 2005). This means that the present value always differs from the future value. The idea is also related to the fact about the future value of any of the long term and/or even short term enthronisations that were made. They will seldom be equal in real terms, even when they seem to be equal as an annuity. The most commonly applied model of the time value of money is our same doddering compounded interest model. An amount of money C for t years at a rate of interest of I% (where interest of 15 percent is expressed also as 0.15) compounded on annual basis, the present value of the recei pt of C, t years in the future, isCt = C(1+i)-t = C/(1+i)tThe expression (1 + i)t is a generic roll of calculating almost al sorts of present value. Where the interest rate is deemed to be something which is not constant figure over the period of the investment(s), different values for I may respectively be used an investment over a two year period would then have PV (Present Value) ofPV = C(1+i1)-1.(1+i2)-1Present value is additive. This means that the present value of a bundle of cash flows is the sum of each individuals present value.If there are no risks involved in the examine i.e. the project is deemed to be risk free, the expected/forecasted rate of return from the project must equal or exceed this rate of return or else it would be better to kinda invest the capital investment in these (potentially) risk free assets. If there are risks involved in any such investments or a project ventures this can be reflected through the use of a risk premium. The risk premium that is r equired can easily be found by comparing the investment with the rate of return required from other similar projects with similar risks (Ross & Westerfield, 2007). Thus it is possible for almost all investors to take account of any uncertainty or risk factor