Question

1. How do you think today's low interest rate environment is impacting the time value of money? How might this change the value of an asset or liability?

2. What is the relationship between the concepts of net present value and shareholder wealth maximization?

Answer 1

1)Today's low interest rate environment will affected the discount rate and the discount rate will also be lower due to which there will an increase in the present value of future cash flows. if you see in bond market decrease in interest rate will lead to increase in the price of Bond and inflates it value. Hence, Low interest leads to decrease in the time value of money and esclates the value of an asset and at the same time it will have negative impact on the value of liability.

2)The realtionship between Net present value and shareholder's wealth maximization is that NPV measures the present value of the future cash flows that a project will fetch over its life and if the  NPV turns out to be positive thant measn the investment in the project will increase the value of the company and shareholder's wealth is also expected increase at the same time.