Because of the possibility cost of keeping cash and not investing it, the present value of a dollar can be much higher than its future worth. Inflation continues to reduce the dollar’s value. The value of money is reduced by inflation. Therefore, today’s buying power of the dollar is higher than it was in 20 years. The time value of money is affected by investment risk and interest rates. These characteristics fluctuate with time, influencing the value of money (Badu & Appiah, 2018).
The investment capital that is available for launching a new enterprise can be represented by the present values. To expand its operations to another place, the firm examines its cash in relation to its current value (Sun and al., 2002). A sum of money is called the future value. It is simply the accumulation of that amount. Money invested in earns interest or returns. Future value includes current value as well as accumulated interest, or return. Future value is the sum of all current and accumulated interest or returns.
Senior corporate management includes the chief executive officer and chief financial officer as well as other executives in the C-suite. Chief executive officers are engaged in the capital investment decision-making process because they decide the amounts invested, evaluate investment risks, identify projected returns, and assess investment feasibility (Marchioni & Magni, 2018). These executives are responsible for achieving business strategic goals.
There are many factors to be considered before making investment decisions. The timing of the investment is crucial in determining the company’s return rate and quality. A recession may prevent a company from investing. Corporations must consider possible disruptions before investing. A feasibility study must be done by the company to determine its viability. To ensure that the proposed project is profitable, the study can include either a break-even or cost-benefit analysis. The study will explain the internal rate of return, the net present value, the accounting rate, and the payback time (Marchioni & Magni, 2018). Also, the study will provide information on how lease payments, purchase expenditures and borrowings affect its cash flow. It is important to know how much money the firm needs in order to contact financial institutions or arrange preparations. This information helps to understand the processes involved in manufacturing and procuration.