In this assignment, you will apply the basic principles of the time value of money to business decisions.
You are the chief financial officer of a firm. The firm has an expected liability (cash outflow) of $2 million in ten years at a discount rate of 5%.
• Calculate the amount the firm would need on the present date as savings to cover the expected liability.
• Calculate the amount the firm would need to set aside at the end of each year for the next ten years to cover the expected liability.
• Explain the specific business decision that management made after computing this value. Analyze how management used the concept of the time value of money principles to make this decision.
• Analyze factors other than the time value of money that management considered or should have considered in reaching the business decision.