Class,
As we near the conclusion of our course, I want to express how wonderful it has been to share
this learning journey with all of you. My best wishes go out to each of my fellow classmates as
they pursue their various endeavors. And, Dr. Shah, a heartfelt thank you for your valuable
efforts throughout. Your dedication has truly been admirable.
Lets get to the main part of the discussion
Section 1: Finance in Our Personal Lives
The most valuable takeaway from this lesson is understanding the time value of money. When it comes to
personal projects, my most significant investment, I don't hesitate. money's value changes over time,
right? That's where the time value of money comes in. In my personal life, this idea has been a game-
changer for making big financial decisions. Whenever I'm looking at investments or savings options, I
remember that a dollar today is worth more than a dollar in the future. It's like a reality check for future
cash. This concept helps me compare different choices – like if I should invest my savings now or later.
It's like having a crystal ball that shows me which choice could be worth more down the line. Time value
of money has helped me steer clear of decisions that might sound great on the surface but could actually
end up costing more in the long run. Even if the project's worth is in question, leaving it unfinished can
escalate costs. Although the current value of the dollar surpasses its future value, completed projects are
appreciating globally (Cornett et al., 2019). Companies use it to figure out if an investment's worth today
will still hold up tomorrow. Think of it as a reality check for future cash flows. It's like saying, "Hey, will
this investment still make sense a few years down the road?" This tool's a game-changer in smart financial
planning. Equally important is mastering financial management skills, particularly through dissecting and
analyzing financial statements. These statements provide a window into a company's financial well-being
through accounting practices (Cornett et al, 2019). For instance, when I was considering buying a car, the
time value of money played a big role. I had the option to pay the entire amount upfront or go for a
monthly payment plan. Using this concept, I realized that if I paid upfront, I could avoid paying interest
over time, which means I'd actually be saving money. So, I chose to make the upfront payment and save a
good chunk in the long haul. This tool has become my financial compass, helping me see the bigger
picture when making personal financial decisions. It's like peeking into the future and making choices
that'll pay off – literally!
Section 2 : Discuss the practical application of any one of these topics/tools in corporate
finance and include an appropriate reference to support your statement.
In the world of corporate finance, we've delved into a vital tool known as the "weighted average cost of
capital" (WACC). WACC plays a pivotal role in financial management due to its versatile nature. It acts
as a strong indicator, supplementing beta testing and profitability analyses while considering the
integration of various income streams utilized by the user. Imagine a company as a puzzle, with different
financial pieces like debt and equity(Hargave, 2021). WACC acts as the financial architect, computing the
weighted average cost of these funding sources, aiding companies in making informed decisions. By
determining the optimal blend of financing, companies can assess the cost of raising capital for new
projects. This tool is akin to balancing financial ingredients for the best recipe of success. It's like
deciding between borrowing from your buddy and taking a loan from the bank – which one's easier on the
wallet? WACC helps companies find the sweet spot for getting money. CFOs utilize WACC as a
benchmark when choosing new ventures that yield returns exceeding WACC, helping evaluate business
risk levels (Stotz, 2017). Yet, a challenge arises in the diversity of calculation methods used. Brigham and
Ehrhardt (2021) explain in their book how WACC quantifies the cost of capital, allowing businesses to
assess the viability and allure of different financing options for sustainable growth. They present WACC
as a strategic formula, showing how it guides enterprises in aligning funding decisions for optimal
outcomes.
Reference:
1. Brigham, E. F., & Ehrhardt, M. C. (2021). Financial Management: Theory & Practice. Cengage
Learning.
2. Cornett, M., Adair, T., & Nofsinger, J. (2019). Finance: Applications and theory, 5/e. McGraw
Hill.
3. Hargrave, M. (2021, March 9). Weighted average cost of capital (WACC). Investopedia.
Retrieved June 21, 2021, from https://www.investopedia.com/terms/w/wacc.asp (Links to an
external site.)
4. Stotz, A. (2017, April 4). How to use WACC to value a company. Equities.com. Retrieved June
21, 2021, from https://www.equities.com/news/the-average-thai-listed-business-pays-9- for-the-
funds-it-uses
