Let’s Discuss: “Applying the Concepts”:Please give us one example from your research, work, or personal life of an application of the material we have covered during this module. Once you have read your fellow students’ postings please add comments where you relate your own similar experience or course material.Module 3
The Time Value of Money and Discounted Cash Flow
Valuation
In chapter5 , we will learn about the concepts of present value,
future value and discounting cash flows. These concepts form
the basis for every concept going forward In this course and in
higher level financial courses. TVM estimates impact our
business decisions and calculations but perhaps more
importantly impact our mortgage, loan and retirement
calculations. More specifically, after studying this chapter you
should be able to explain:
The basic PV and FV calculations.
How to apply these calculations in establishing value and management
decisions.
The methodology of discounted cash flow.
Why is money today worth more than money tomorrow and how does this concept
translate into a method we can use to help judge our decisions and manage our
businesses? These are the questions we will seek an answer to in this chapter and
reinforce with the quiz at the end.
Chapter 6 helps us understand how to use the DCF method to establish valuation
techniques that are widely applied in our business and personal lives. We will
understand what these calculations measure and how they influence our concepts of
risk and return in finance.
More specifically, after studying this chapter you should be able to describe:
The Discounted Cash Flow methodology.
The difference between interest rates and different compounding
methods.
The concepts of present value and future value as well as discounting.
How to determine a firm’s cash flow in the context of required rates of
return and compensation for risk.
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