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I already solve the finance statement problem. I want to double check with tutor. thanks Question The time value of money concept is useful in
I already solve the finance statement problem. I want to double check with tutor. thanks
Question The time value of money concept is useful in decision making in finance, marketing, human resources, operations, and information technology. It is also useful in four tasks of management that are planning, organizing, leading coordinating, and control. Let's look at the planning task of the management. In the planning task managers set or choose clear goals and objectives, and formulate strategies to achieve those goals. For example the company's current sales are $1 million dollars, and they have set a 5% growth in sales for each of the next five years, and the current cost is $800,000, and the project cost will increase in equal amounts for next five years, and the cost at the end of the five years will be $1,122,042. If the management has the understanding of time value of money they will be able to set the correct goals. Explain how would you use the time value of money concept to make a decision on what growth in sales goal would you set for this company so that the company maintains the same operating margin for the next five years. Anwer. According to the definition of Gross Profit margin, Gross profit margin =Sales - Cost of goods sold/sales Future value=present value*(1+i%)^n, future value=$100,000*(1+5%)^5=$127,6282 Future gross profit margin=($1,276,282-$1,122,042)/$1,276,282=12% Gross profit margin at end of 1st year= ($1,000,000-$800,000)/$1,000,000=20% The idea that time value money available at the present time is worth more than the same amount in the future due to its potential earning capacity. This also apply with concept of gross profit margin. The profit margin at 1st year is only 20% versus the profit margin at end of 5 year which is 12%. To calculate the growth sale for company and maintaining the same operating margin in the next 5 years. 20%=(x-$1,122,042)/x x=$5,905,484.21 future sale $5,905,484.21=$1,122,042*(1+i%)^5=39% To maintain the same operating margin the growth sale would be 39%Step by Step Solution
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