finance discussion

100 word min for each question. APA format. Site resources where necessary.

1. As we know or learn, the goal of an organization is to maximize profits for shareholders, but also to earn a rate of return on investments. This week you will learn various time value of money calculations including calculations for return on investments. For instance, when computing the rate of return from selling an investment, the number of years between the present and future cash flows is an important factor in determining the annual rate earned.  

  

Here is an article which offers a brief outline of a few rate of return calculations. 

https://hbr.org/2016/03/a-refresher-on-internal-rate-of-return

Class, in what ways does your employer (or other businesses or you) use ROI?

2. Finance managers are expected to determine a value of cash flows that have high returns in the future. Many decisions finance managers make are dependent on the time value of money. The phrase 'a dollar in a hand today is worth more than a dollar tomorrow' is a true fact. Here is an example of how time value of money was used by McGraw Hill Financial and Oracle. 

http://www.bloomberg.com/news/articles/2015-07-27/mcgraw-hill-agrees-to-acquire-snl-financial-for-2-23-billion

http://www.streetinsider.com/Analyst+Comments/Oracles+(ORCL)+Cloud+Expansion+Underestimates+Earnings+Power+-+Jefferies/11435101.html

Class, your thoughts?

3. When a business has constant cash flows, the cash flow is referred to as an ordinary annuity. Before investing in a project, managers have the opportunity to calculate present value of a project to determine how much is being offered for the annuity. We too have the same opportunity to calculate whether an invest will generate positive returns.

Here are two examples of annuities (the United States and United Kingdom).

http://www.bbc.com/news/business-31090025

http://www.cnbc.com/2016/03/13/volatility-driving-retirees-to-think-longevity-annuity.html 

Thoughts, Class?

4. Commercial banks are depository institutions that take deposits (such as checking or savings deposits) and make loans (such as mortgage loans or auto loans). Majority of us have one commercial bank which we conduct business. For instance, I conduct majority of my banking business at Associated Credit Union (ACU). Credit Unions seem more personal to my needs. When residing overseas, ACU waived all foreign exchange fees since I have been a member for more than 10+ years. 

 

Is it important to distinguish between depository and non-depository financial institutions? Please explain why financial institutions are important to a business as well as yourself.

5. Class, here is a video link which I think will assist you in understanding the pros and cons of EAR and APR (including a step-by-step calculations).

 

https://www.youtube.com/watch?v=TrFMr7yTWRM

 

Class, your thoughts?

6. Respond to this classmates take on investors:

I have taken out numerous loans in the past and most companies have offered competitive rates to try gain customers whether it be from low interest rates or possibly deferring the interest if paid back within a certain time to offer more to consumers or myself later on when needed again. I have seen so many people fall victim to the enormous interest rates of payday loan stores, because they maybe in a tough situation and have no where else to get the money, that is how they operate. When we purchase a car according to the loan the first thing we are looking for is incentives and interest rates. We all would not like to buy a vehicle for $24,000 and have an interest rate of almost 20% and find ourselves paying almost double for the car so therefore if we can get it at about less then 10% we maybe more inclined to purchase. Most car dealers are in the business to make money and is quick to say buy this small vehicle to establish credit at a high interest rate and pay on time, with possibly getting a new one that you really want at lower interest or possibly refinance the vehicle after 8 months of on time payments. Perfect example is when new cars roll of the assembly at the end of year car dealers are trying to offer a deal to get rid of the inventory of older cars they still have. Timing means so much and must carefully think things out when making such an investment that can change our lives.

7. Phillip, I too prefer credit unions over commercial banks. I remember working for Georgia Lottery and human resources asked if I had an account at Associated Credit Union (ACU) (Yes, this is how I initially was introduced to ACU.). I had a Wachovia account for many years and enjoyed banking with Wachovia possibly because it was my family's banking institution. I rarely used ACU until employed at a job which banked with ACU.

Class, though this is not the case for every employer, why do some employers ask employees to open an account at the same institution the employer banks at? 

 

8. Class, based on Michelle's post, she asked the following, "Is there any other way to estimate the return of our investment on real estate?". 

 

Your thoughts, Class?