Discounted Cash Flow Case Study

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Discounted Cash Flow: The Money that Makes Money
Ahmed A Morsy
Davenport University Working in a market driven by loans, bailouts and investments, it is essential for a company to understand the various methods employed in operating a loan. It is not necessarily for the sole purpose of acquiring a loan, but it is also helpful in understanding how investments will turn out whether by lending others or inputting cash in businesses as forms of investment. There are various elements than need to be considered in the cash flow process that can help identify the benefits of a certain investment or decide against investing in a certain firm. Future value, compounding periods, present value, loan amortization and rate of return of an investment (Ross, Westerfield and Jaffe, 2013). By understanding and employing the above elements, a firm or person can maximize their investments and minimize their losses.
Many individuals who have saved a decent amount of money prefer to invest their moneys in one way or another. Some like to invest in a bank’s savings account where a fixed interest rate is added onto the amount. Others like to invest …show more content…

The start-up company and Ben already are at an agreement that a 10% interest rate will be implemented in the investment which in this case will be considered a loan. The start-up company, will need to understand that this loan will go through amortization as the payment process proceeds. It is expected that the $10,000 will be paid over the following five years wherein a set amount of the principle amount will be paid with a decreasing amount that accounts for the interest. To make things simpler, amortization of Ben’s loan will be $2000 per year is paid from the principle + 10% interest rate over the remaining principle. The breakdown would then

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