(BQ) Part 2 book "Financial accounting information for decision" has contents: The time value of money, financing activities, analysis of financing activities, investing activities; analysis of investing activities; operating activities; analysis of operating activities,.and other contents. | F8 8 F8 THE TIME VALUE MONEY OF How much will it cost to borrow money? M aria and Stan have been successful in starting Mom’s Cookie Company. The company has been profitable and is growing as more customers demand its products. Maria and Stan are now concerned about meeting the additional demand. They need to expand their operations, and they are considering producing their own products rather than purchasing them from other bakeries. Before they can expand, however, they must obtain additional financing for their company. The time value of money is an important concept that business owners need to understand before they borrow money. FOOD FOR THOUGHT If you were going to borrow money, how much would you have to pay back over the life of the loan? How much would you have to pay each period? How much interest expense would you incur? Borrowing money always involves an investment by one entity, a bank for example, in another entity, such as Mom’s Cookie Company. The amount repaid by the borrower includes interest in addition to the amount borrowed. Maria and Stan are considering borrowing from a local bank but have decided to discuss the loan with their accountant, Ellen, to determine how much the loan will cost. Ellen, Maria and I are considering expanding our business. To finance the expansion, we will need a loan. We are concerned about how much the debt will cost us and how much cash we will need to repay the principal and interest. Ellen: You should be concerned about these issues. You should never borrow money without a clear idea of how much you will have to repay. Maria: We know we’ll have to repay the principal of the loan plus interest. We’re not sure, however, how much the bank will require us to repay each period. Ellen: To understand loan payments, you need to understand time value of money concepts. Interest computations can be complex, depending on when payments are made and whether you repay the loan in a single payment or in a series of .
