Week 3: TVM Model
3737 unread replies.7676 replies.
What are some of the assumptions behind the TVM calculations? How do these assumptions limit our application of these calculations?
**For full credit reply to the prompt and to another student's response. You should have two postings for your 2...
Week 3: TVM Model
3737 unread replies.7676 replies.
What are some of the assumptions behind the TVM calculations? How do these
assumptions limit our application of these calculations?
**For full credit reply to the prompt and to another student's response. You should have
two postings for your 20 points.
o Collapse SubdiscussionAlina Bell
Alina Bell
Jan 17, 2021Jan 17 at 6:31pm
Manage Discussion Entry
TVM is a very important financial concept. Yes, as managers we look at dollar
numbers from year to year and strive to 'beat' our own goals, to do better from year
to year, to increase sales, productivity, bottom line, etc. Inflation is not really at the
forefront of our daily lives, but it is something we DO have to take into account.
In reality, if your company has a long term lease, its payments will go up from year to
year. Wages go up form year to year, whether or not our employees earn their
raises. Yes, in an ideal world they do, and we want to retain them. But, cost of living
increases and minimum increases in wages in every state cause us to re-allocate
funds and work hard on payroll budgets. Our cost of goods, utilities, and all other
expenses go up from year to year. For the longevity of our companies, we have to
be wise when investing our profits and even wiser when borrowing funds.
According to Forbes, "inflation occurs when prices rise, decreasing the purchasing
power of your dollars. In 1980, for example, a movie ticket cost on average $2.89.
By 2019, the average price of a movie ticket had risen to $9.16. If you saved a $10
bill from 1980, it would buy two fewer movie tickets in 2019 than it would have nearly
four decades earlier."
While inflation is a sign of a healthy economy, when is gets out of hands, it can
topple a country's economy. Inflation is measured on 'baskets of products' using the
formula (Current Price-Former Price) / Former Price.
The U.S. inflation rate is measured by the Consumer Price Index, the Producer Price
Index, and the Personal Consumption Expenditures Price Index. Because no one
index captures the full range of price changes in the U.S. economy, economists
must consider these multiple indexes to get a comprehensive picture of the rate of
inflation.
https://www.forbes.com/advisor/investing/what-is-inflation/ (Links to an external site.)
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Collapse SubdiscussionAmber Conrad
Amber Conrad
Jan 18, 2021Jan 18 at 1:25pm
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Alina,
Great contribution to the discussion.
I came across an article called "What Does the Future Hold for Inflation" that was an
interesting read. The author talks about the affects COVID-19 has had on the
economy, the stimulus packages that American's are receiving and the effects of the
stimulus packages on our economy for the next couple of decades. It was interesting
to read that the national debt is approaching $27 trillion. Money is still being printed
but American consumers are just not spending how we were prior to COVID-19. This
whole dynamic shift may result in a decrease in inflation for the near future. The
article can be retrieved at:
https://www.bondbuyer.com/opinion/what-does-the-future-hold-for-inflation
Reply Reply to Comment
Collapse SubdiscussionRelicia Campbell
Relicia Campbell
Jan 21, 2021Jan 21 at 6:42pm
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, Hi Class,
I was also reading an article why the federal reserve care about the inflation. So the
Fed’s mandate is to achieve maximum sustainable employment and price stability. It
defines the latter as an annual inflation rate of 2 percent on average. To help
achieve that goal, it strives to “anchor” inflation expectations at roughly 2 percent. If
everyone expects the Fed to achieve inflation of 2 percent, then consumers and
businesses are less likely to react when inflation climbs temporarily above that level
(say, because of an oil price hike) or falls below it temporarily (say, because of a
recession). If inflation expectations remain stable in the face of temporary increases
or decreases in inflation, it will be easier for the Fed to meet its targets. However,
because the Fed has fallen short of its 2 percent objective for some time, some Fed
officials worry that inflation expectations may be straying from target.
https://www.brookings.edu/blog/up-front/2020/11/30/what-are-inflation-expectations-
why-do-they-matter/
Edited by Relicia Campbell on Jan 21 at 6:45pm
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Collapse SubdiscussionBrett Johnson
Brett Johnson
Jan 24, 2021Jan 24 at 6:26pm
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Alina,
What an interesting article, thank you for sharing. I was also reading how consumers
have taken the stimulus and invested in items such as life insurance. The pandemic
has seen a huge increase in simple life insurance policies, as can be expected. We
also have to take into consideration that many people are sticking this money in
savings. That is exactly what I did. May will tell you that it is not a good investment to
stick your money in savings where you have basically a non-existent interest rate
however, people are unsure of the future so they want quick access to their cash in
case they would need it. Investing money into longer-term investments don't always
offer easy access, or they come with an early withdrawal penalty. Great post.
Reply Reply to Comment
,
Collapse SubdiscussionGwendolyn Bailey
Gwendolyn Bailey
Jan 22, 2021Jan 22 at 3:34pm
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Hi Alina,
Thank you for the sharing the scenerio regarding companies' and the explanation
regarding lease agreements. The reality of investing and borrowing was a clear
wake up call for many in 2020. When it comes the actions such as prolong
evictions,I am sure the fall out of that was not planned and/or accounted for with
regards to economics. This was a very unhealthy economy. Even with stimulus
checks and bail outs, were still not enough to help the economy recover.
Great post!
Reply Reply to Comment
Collapse SubdiscussionGwendolyn Bailey
Gwendolyn Bailey
Jan 22, 2021Jan 22 at 3:37pm
Manage Discussion Entry
Hi Alina,
Thank you for the sharing the scenerio regarding companies' and the explanation
regarding lease agreements. The reality of investing and borrowing was a clear
wake up call for many in 2020. When it comes the actions such as prolong
evictions,I am sure the fall out of that was not planned and/or accounted for with
regards to economics. This was a very unhealthy economy. Even with stimulus
checks and bail outs, were still not enough to help the economy recover.
Great post!
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