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Homework answers / question archive / Assume that today is the end of 2019 and you are considering investing $8,000 starting at the end of 2020 in an investment account
Assume that today is the end of 2019 and you are considering investing $8,000 starting at the end of 2020 in an investment account. This investment amount will then grow at an annual rate of 5%. You plan on ending your contribution to the investment account at the end of 2027. If the annual return on the investment account is expected to be 8% p.a., the present value of this investment is closest to:
Group of answer choices
$99,593.
$47,725.
$81,793.
$53,807.
Define financial management and explain its importance? (4 marks)
Number of periods = 2027 - 2020 = 7
Present value of growinhg annuity = [Payments / (required rate - growth rate)] * {[1 - (1 + g) / (1 + r)]^n}
Present value of growing annuity = [8000 / (0.08 - 0.05)] * {[1 - (1 + 0.05) / (1 + 0.08)]^7}
Present value of growing annuity = [8000 / 0.03] * {1 - 0.82103}
Present value of growing annuity = 266,666.6667 * 0.17897
Present value of growing annuity = $47,725
2
Financial Management is concerned with planning, organizing, directing and controlling the financial activities of an organization. It involves procurement of funds and its effective utilization. It is concerned with applying general management principles in finance administering them.
Importance of financial management
Financial management helps the organization in effective financial planning
Financial management ensures sufficient acquisition of funds
It enables the organization in utilizing and allocating the funds as per requirements
Critical financial decisions are ensured in financial management
Financial management ensures maximization of the profitability and the overall value of the organization.
