How can a corporation best take advantage of the concept of the time value of money?
Contain at least one reference.
The corporation take take advantage of the time value of money in calculation the current value of a competing business that it wants to acquire. So, it can take better business decisions with the Time value of money concept.
Example: Consider that a bank is considering the acquisition of a competing bank and it estimates that the cash flow for the competing bank is currently $1 million annually and is expected to grow at 5%. Assuming the discount rate to be 8%. The current value of the competing business can be calculated as = 1*(1+0.05)/(0.08-0.05) = 35 Million
Hence we can value the competing business at 35 million by using the time value of money here which is the discount rate of 8%
Get Answers For Free
Most questions answered within 1 hours.