Value of money Essay

The underlying principle of time value of money is that the value of a dollar at hand is greater than the dollar in future. This principle of time value of money is helpful to financial managers in incorporating the financial impact of the timing of cash flows in business decisions. Based on the calculations of the present values of money, the option with the highest is preferable. In this case the one with free cash flow 2 is preferable because it has the lowest negative value of present values. When net present values are used, we choose the option with the highest positive value. 75, lower dividend yield does not imply a lower dividend as the price could have increased. The effect of a change in cash dividend per share will have an impact on the dividend yield while the stockholders’ equity will remain constant and the stock prices for the three consecutive years.

When the firm doubles its outstanding shares, the effect on the dividend per shares will lead to a decrease in dividend per share and decline in stock holder’s equity. The dividend yield is the percent of an investors purchase price that the company will pay back to the investor (McTaggart, Mankins, & Kontes, 1994). The capital gains yield is the profits or loss an investor earns on an investment. Milestone four represented by internal rate of return has two interest rates; one with 5% and 15%. Its original interest rate was 8% which the cost of capital. Different internal rate of return has been used so as to calculate the value of net present value when it is negative. The internal rate of return of 15% should be accepted since it is greater than the cost of capital.