How might you use the principles of the time value of money to your financial benefit?
| Time Value of Money
HCA/270 Version 3 |
1 |
Associate Level Material
Time Value of Money
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Order Paper NowResource: Ch. 12, 12-A, & 12-C of Health Care Finance
Part I: Complete the following table by inserting your responses to the questions. Cite any sources you use.
| Define the time value of money. | |
| Provide a real-world example for the time value of money. | |
| Why is time such an important factor in financial matters? | |
| How would you use the time value of money to your financial benefit? |
Part II: Complete the following table by calculating the ratios.
Present Value
| Amount | Compounding period | Rate of interest | Present value |
| $100,000 | Annual | 6% for 10 years | |
| $70,000 | Annual | 4% for 15 years |
Internal Rate of Return
| Initial cost of investment | Periods of useful life | Estimated annual net cash inflow generated | Look-up table value | Rate of interest |
| $75,000 | 10 | $10,190 | ||
| $56,000 | 6 | $12,115 |
Payback Period: Assume there are no income taxes for both scenarios.
| Purchase price of equipment | Period of useful life | Annual revenue generated per year | Operating costs associated with revenue | Depreciation expense per year | Payback period result |
| $550,000 | 10 years | $100,000 | $32,000 | $55,000 | |
| $350,000 | 10 years | $80,500 | $36,000 | $35,000 |
