Week 3 Discussion Time Value of Money

Examine the concept of the time value of money in relation to corporate managers. Propose two (2) methods in which time value of money can help corporate managers in general.

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My Response: The value of money does change depending on how it is used by an organization. Sometimes an organization will invest money and it is worth less at the beginning versus what it will be worth at the end of the investment period. One thing a corporate manager can do is adjust the organization’s cash flow based on the value of the money they are receiving at a certain point in time. This would help the manager prepare when he can pay bills and exact what the value of the cash will be at the time. Another method the manager could use is the project profitability index to help manage the cash flow of the organization. This method would allow the manager based on the funding coming into the organization to decide which projects would benefit have the cash put into the project. Using various techniques to value money in a business by a manager within an organization can help both the manager and organization to remain successful and remain operational in the coming days.

Post by Natalie Carethers: Time value of money suggests that money has different value depending on the time it was received. It is very similar to money in your hand today would be worth more at a future date. Time value of money is a concept to understand the value of cashflows occurred at different point of time. Money that we have today is worth more because of the interest we can make if it’s invested. Managers use time value to calculate the present value of both a sum of money and a stream of cash flow.

Response to Natalie: I really enjoyed reading your post, Natalie! I agree with you on what time value of money suggests that money has different values at different times within an organization. I think it is very important for managers of organization especially the managers that deal directly with the finances of the organization to understand the value of the money they are receiving. I believe if managers understand the value of the money coming into the organization, then they would be able to manage the organization’s cash flow better.

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