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

Financial Analysis for Managers II - Essay ExampleIt is a bushel criterion paid on annual basis (Myers & Allen, 2005). This amount index be constant for a certain period of time or may demand a steady trend for any(prenominal) time and may fluctuate otherwise. The annuities and the time pass judgment of money are related and affected by certain factors. These are as followsInterest lay outs are the prevailing charges of availing the facility of the capital that might have been invested in an fill generating instrument or a bank account. The interest rates of progress loans and paying on the deposits are different and that the difference is actually the monetary reward of utilizing that capital. However, the actual look on of money, even when the principal amount is added up with the total interest amount received as an annuity, is unremarkably different from what it was at the time of blocking that money into the respective reserve under question. This may have a differen t affect on the compounded interest approach. Since the interest is compound, therefore it yields a higher(prenominal) amount at each step and thus 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 present value of future payments and/or income(s) that are expected to be received (Myers Allen, 2005). This means that the present value incessantly differs from the future value. The idea is also related to the fact about the future value of any of the huge term and/or even short term investments 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 position of the time value of money is our same old compounded interest model. An amount of money C for t long time at a rate of interest of I% (where interest of 15 percent is expressed also as 0.15) compounded on annual basis, th e present value of the receipt of C, t years in the future, isCt = C(1+i)-t = C/(1+i)tThe expression (1 + i)t is a generic form 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 hence 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 kernel of each individuals present value.If there are no guesss involved in the take to 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 rather 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 required can advantageously be found by comparing the investment with the rate of return required from other equal projects with similar risks (Ross & Westerfield, 2007). Thus it is possible for almost all investors to take account of any uncertainty or risk factor