Valentin, John Christian E.

BSA-2A

1. Timeline
A line or chart showing a company's cash inflows and cash outflows and the
business activities that caused them over a given period.
This is the timeline that the finance manager uses to determine the inflow and
outflow of the money in a given period od time so that the entity owners can
know if their business is still earning. For the investor to know if their
investment can still return and lastly for the creditors to know if is still worth to
lend them money

2. Compounding and Discounting Methods

Compounding Methods: It tells us the future value of the money or a property
depends on the given time period
For understanding the concept of compounding, first of all, you need to know
about the term future value. The money you invest today, will grow and earn
interest on it, after a certain period, which will automatically change its value in
future. So the worth of the investment in future is known as its Future Value.
Compounding refers to the process of earning interest on both the principal
amount, as well as accrued interest by reinvesting the entire amount to generate
more interest.

Compounding is the method used in finding out the future value of the present
investment. The future value can be computed by applying the compound
interest formula.

Quarterly Compounding: FV = $10,000 x [1 + (10% / 4)] ^ (4 x 1) = $11,038

Monthly Compounding: FV = $10,000 x [1 + (10% / 12)] ^ (12 x 1) = $11,047
Daily Compounding: FV = $10,000 x [1 + (10% / 365)] ^ (365 x 1) = $11,052

While in Discounting Method: tells us the present value of a property or

money
Discounting is the process of converting the future amount into its Present
Value. Now you may wonder what is the present value? The current value of
the given future value is known as Present Value. The discounting technique
helps to ascertain the present value of future cash flows by applying a discount
rate. The following formula is used to know the present value of a future sum:
Example:
Formula

R= Discount Rate
N= Number of Years

 Quarterly Compounding: FV = $10,000 x [1 + (10% / 4)] ^ (4 x 1) =

$11,038
 Monthly Compounding: FV = $10,000 x [1 + (10% / 12)] ^ (12 x 1) =
$11,047
 Daily Compounding: FV = $10,000 x [1 + (10% / 365)] ^ (365 x 1) =
$11,052
Valentin Enterprises has to invest $ 250,000 at a quarterly interest 25%
compoundly quarterly the value of investment in 25 years.
Formula: FV = $10,000 x [1 + (10% / 4)] ^ (4 x 1) = $11,038
FV = $ 250,000 x [1 + (25% / 4)] ^ (4 x 1)
= $ 250,000x 1.27442932129
= $ 318607.33
3. Present Values and Annuity Values
Present value: Tells you how much money to fund a series of annuities payment
in the future
Formula: P=PMT×r1−((1+r)n1)
Example: Valentin Enterprise has the opportunity to receive an ordinary
annuity that pays P30,000 per year for the 30 years, with a discount rate of 5%
P= P30,000×0.06 1−((1+0.05)30)
P= 461,173.53
Annuity Due: is an annuities that was paid during the beginning of a period
Formula:
Periodic Payment when PV is known: PmtAD=PVAD[1−1(1+i)(N−1)i+1]
Periodic Payment when FV is known: PmtAD=FVAD[(1+i)N−1i](1+i)

Ordinary Annuities: is an annuities that was paid at the end of the period
which is usually used by the business entity
Formula:
Present Value of an Ordinary Annuity: Present Value = PMT x ((1 - (1 + r) ^
-n ) / r)