The time value of money is one of those bedrock principles that supports so much of...

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Finance

The time value of money is one of those bedrock principles thatsupports so much of Finance (and Economics, for that matter). It isessential to understand that the value of any particular amount ofmoney will change over time. Typically the value of a particularamount of money will erode over time in a positive interest rateeconomic environment.
In Chapter 4 of the text, the authors use examples of cash andfinancial assets (stocks, bonds, annuities, etc.) to illustrate theconcepts of discounting and compounding.
Are these concepts appropriate for analyzing investments inother types of assets (for example factory equipment or licensingrights)? Give reasons to support your answer.
Can you think of any types of assets for which discounting orcompounding are not the most appropriate valuation technique?
Are there other types of transactions which can be efficientlyanalyzed using discounting and compounding techniques?

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Conceptually the concepts of time value of money can be applied to any asset be it fixed asset tangible or intangible This is because finance strongly supports the fact that value of any asset today is nothing but present value of all the future cash flows it can generate The need to obtain present value leads us to the concept of time value discounting and compounding Hence factory See Answer

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The time value of money is one of those bedrock principles thatsupports so much of Finance (and Economics, for that matter). It isessential to understand that the value of any particular amount ofmoney will change over time. Typically the value of a particularamount of money will erode over time in a positive interest rateeconomic environment.In Chapter 4 of the text, the authors use examples of cash andfinancial assets (stocks, bonds, annuities, etc.) to illustrate theconcepts of discounting and compounding.Are these concepts appropriate for analyzing investments inother types of assets (for example factory equipment or licensingrights)? Give reasons to support your answer.Can you think of any types of assets for which discounting orcompounding are not the most appropriate valuation technique?Are there other types of transactions which can be efficientlyanalyzed using discounting and compounding techniques?