Investment Management for Value of Money in Time- myassignmenthelp

Question: Discuss about theInvestment Management for Value of Money in Time. Answer: Value of Money in Time Nominal cash flow refers to the actual dollar amount of money that a business supposes to take in and pay out, without any adjustment for the inflation (La Cava, Hughson, and Kaplan, 2016). The nominal value for the expenditure for the each year is shown below starting from 1/8/2018 and ending at 01/07/2021. The nominal value is calculated considering the inflation rate 3% per annum. The total nominal cash flow total is $927 million is spent by the company in the next 4 years. The calculation of the nominal cash flow is based on the inflation rate. The formula for the calculation of the nominal cash flow value: - Real value*(1+i/100). Year Real Value (million) Inflation Rate Nominal Value (Million) 1/7/2018 $200 3% 206 1/7/2019 $300 3% 309 1/7/2020 $250 3% 257.5 1/7/2021 $150 3% 154.5 927 The nominal value for the expenditure for the each year is shown below starting from 1/1/2018 to the subsequent next 4 years. This shows the year forecast of the expenditure considering the same real value and the inflation rate. Over here, the nominal value is what actually paid by the company to get the work done or to accomplish the project of the company. Year Real Value (million) Inflation Rate Nominal Value (Million) 1/1/2018 $200 3% 206 1/1/2019 $300 3% 309 1/1/2020 $250 3% 257.5 1/1/2021 $150 3% 154.5 927 (Assumption: The amount of real value and inflation rate for 1/1/2018 is assumed same as given in the question). The We'll Do It Cheap Ltd contractors offer to build the FPSO Facility for a fixed one-off payment of $935 million that is payable on 01/07/2018. The company will not accept the offer of the contractors because if the company perform the same task in the 4 years they will be able to complete the task in the nominal value of $927 million. The payment asked the amount is quite high for the company. The Good Oil company always consider the nominal cash flow while making the decision. The Well Do It Cheap Ltd again reviewed the offer, the offer of the contractor consist of two-time payment. The first payment will be $470 million on 01/07/2018 and the second payment will be $465 million on 01/07/2019. I will accept the offer of the contractor as the nominal value includes the discounted. The discounted cash flow is used by the Good Oil company to determine the future amount that the company will pay. The discounted cash follow method is used to assess investment opportunities. Formula for the discounted nominal cash flow: - Real value/ (1+i/100). Year Payment Inflation Rate Nominal Value 1/7/2018 470 3% 456.3107 1/7/2019 465 3% 451.4563 907.767 The table show the nominal value for the year 2018 and 2019, the company can see the benefit. The company is expected that the nominal value in the next 4 years will be $927 million. Comparing the nominal amount $907.767 million and $927 million, the Good Oil company business analysis would accept the offer of the contractor because they found it a better offer. The inflation rate should be 4% to reverse the answer of the question c. If inflation rate will be 4% for the 4 years the company will be able to accept the offer of the Well Do It Cheap Ltd. The total nominal value for the 4 years is $936 million and the contractor is offering $935 million. I will accept the offer once the inflation rate will be 4%. Year Real Value (million) Inflation Rate Nominal Value (Million) 1/7/2018 $200 4% 208 1/7/2019 $300 4% 312 1/7/2020 $250 4% 260 1/7/2021 $150 4% 156 936 Taxation Concepts Discussion Purpose and Impact of Tax Depreciation in After-Tax Discounted Cash Flow Deprecation is a non-cash accounting charge; it is a tax-deductible expense. Depreciation reduces the tax cost which has a positive impact on cash flow. Deprecation is a deduction in included in income before taxes. It is presented as an adjustment in settling the net income to operating cash flow (Doidge, and Dyck, 2015). The tax Depreciation in After-Tax Discounted Cash Flow is used by the investors to gain the tax benefits provided by the tax authorities in relation to depreciation expense. As the depreciation is a noncash expense the company may take the tax advantage of it by inflating the expenses in the tax reports. Relative merits of Straight Line Depreciation vs. Units of Production Depreciation Merits of Straight Line Depreciation The calculation of depreciation through straight-line depreciation is easy and simpler (Halim, Sharif, and Jaaman 2016). It can be applied to all long-term assets. This method is the usable accounting method and widely acceptable across the world. The quantum of depreciation and the rate of the depreciation remain fixed throughout the complete useful economic life of the assets (Bello, I.K., 2014). Merits of Unit of production depreciation This method is based on the quantum of usage of the assets, the basic principle says the more usage- the more will be an amount of the tear and wear of the assets (Gillespie, 2014). The aim of this method is to overcome the restrictions of the straight line method of the depreciation. The quantum of depreciation gets reasonably and suitably coordinated with the level of the production each year (DRURY, 2013). The biggest merit of this method is more accurate than the other methods of depreciation cost. This method gives a better picture and helps in assessing the true picture of assets to the owners. References Bello, I.K., 2014, depreciation measurement in cost method of valuation in lagos metropolis. Am. J. Soc. Mgmt. Sci, 5(2), pp.73-83. DRURY, C.M., 2013, Management and cost accounting. Springer. Gillespie, A., 2014, Foundations of economics. Oxford University Press, USA. La Cava, G., Hughson, H. and Kaplan, G., 2016, The household cash flow channel of monetary policy. Reserve Bank of Australia Research Discussion Papers, (2016-12). Doidge, C. and Dyck, A., 2015, Taxes and corporate policies: Evidence from a quasi natural experiment. The Journal of Finance, 70(1), pp.45-89. Halim, N.A., Sharif, S.N.B. and Jaaman S.H., 2016, June, Empirical testing of robust optimization profit sharing ratio with straight line depreciation in Aitab instrument. 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