Question 4

a) What is the time value of money and how can finance manager use it to benefit the firm?

b) Knowledge of financial tools is relevant for decision making in all areas of business (be it finance, marketing, production etc.) and also in managing personal finances. The decision involves an element of time and uncertainty on financial viability for projects is the proof that principles money has a time value. Based on your understanding discuss in details on how can Present Values of annuity can be increase? c) Zahid is 20 years old today. He makes a wish that after 20 years from now he will be stop working and enjoy his life on travelling around the world for 10 years more. In case he needs RM30,000 per year once he stop working, with the 1st withdrawal one year after quit form working. He also estimates will earn 10% per year on saving account.

i) How much must Zahid deposit each year in a saving account, starting one year from today, so that he had enough funds after stop working? ii) How much must Zahid deposit in a saving account today so that he has enough funds for travelling around the world?

d) Given below is uneven stream cash flow involving one annuity with the rate 10%.

0 1 2 3 4 5 6 500 100 150 100 -700 100

Please calculate:-

i) What is the future value of year 6, for the given uneven cashflow

ii) What is the present value of year 0, for the given uneven cashflow

e) Amir has an current account that shows a balance of RM2,523.50 on January 1, 2020. She wants to make five withdrawals of RM700 each on December 31 of years 2020 through 2024. Amir wants the account to have a balance of RM0 on December 31, 2024. In order to proceed with his plans, what annual interest rate does Amir need on her account, assuming that annual interest earnings are added to the principal on December 31 of each year?