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MGMT340 TVM help

# MGMT340 TVM help - Time Value of Money We are going to...

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Time Value of Money We are going to discuss one methods of determining a projects’ feasibility where we investigate whether the project should be developed at all. We will discuss the Time Value of Money technique where Business Systems Analysts compares present cash outlays to future predicted returns for economic feasibility studies. All projects have one time costs and recurring costs. One time costs are the initial cost of all the hardware, software, and people resources needed to complete the project. Recurring costs are costs for maintenance, operational needs such as electricity, and people costs. Our job is to calculate if the benefits of the system will exceed the costs, and at what point in time it will take place. The dollars you get today are worth more, because you can invest and make more money from the interest. Money received today is more valuable than money received in the future by the amount of interest the money can earn. For example, if \$90 today will accumulate to \$100 a year from now, then the present value of \$100 to be received one year from now is \$90. We will be using the example Time Value of Money spreadsheet to explain what the fields mean and how to fill them in. Let’s begin at the top of the attached worksheet. In this example, we will calculate the costs and benefits for a five year period. This is the expected life time of the system before it will need to be replaced. Some systems might have a shorter or longer life span, but five years is good for our example. Let’s look row by row and describe what each term means.

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MGMT340 TVM help - Time Value of Money We are going to...

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