Question

How can a corporation best take advantage of the concept of the time value of money?

Contain at least one reference.

Answer 1

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%