Discuss the nature and importance of the TVM equation. What ...

[karen]

Discuss the nature and importance of the TVM equation.
 
  What will be an ideal response?

Question 2

A way of managing a firm's cash disbursements would be through
 
  A) accounts receivable factoring. B) zero balance accounts.
  C) lockbox system. D) floating lien.

[LP]

Answer to Question 1

Answer: The TVM equation makes the fundamental point that money flows over time cannot simply be added or subtracted. That is why money flows need to be discounted or compounded to one point in time, whether the flows are lump sums or annuities. Discounting or compounding can be done mathematically or with a TVM table, financial calculator, or spreadsheet. The TVM equation is important because it is used in almost every financial applicationfor example, loans, the pricing of financial and real assets, assessing firm projects, savings plans, and retirement plans.

Answer to Question 2

B