Time value of Money (TVM) is the notion that a dollar held at present has more value than one which would be received in the future. This concept is used in evaluation of projects’ viability in capital budgeting and in selecting projects when a firm needs to exercise capital rationing.
There are various variations of the TVM technique including Net Present Value (NPV), Internal Rate of Return (IRR), and the discounted payback period. Alternatives to TVM comprise of those techniques that do not factor-in time in evaluating project cash flows in capital budgeting. One variation of these techniques is the non-discounted payback period approach (Pandey, 2008).
Features of TVM
Time Value of Money measure utilizes the following elements to take into account the time factor of cash flows during capital budgeting:
- Time periods involved. These could be in months or years or any other unit of time.
- Discount rate
- Periodic cash flows
- Present Value or future value depending on which one is to be determined.
Advantages of TVM over other valuation Methods
Time Value of Money approach has the following benefits over other methods of valuations in investment decision-making:
- It considers the fact that a dollar held today has potential earning power compared to one that would be received in the future.
- It acknowledges that the value of money is eroded by inflation.
- It takes into account the default risk inherent in investments.
Aspects of Global Negotiations
There are various aspects to be taken into consideration when engaging in international negotiations. Some of these aspects are cultural, legal, and economic factors.
Importance of Cultural Factors
Culture is a very important factor when undertaking international negotiations. Since the negotiating partners will be coming from different cultures, they will have different values and, thus, it is very crucial for them to understand each others culture in order to minimize conflict during the negotiation process (Thompson, 2005). If I was involved in global negotiations, I would try to understand the cultures of all the parties involved in order to reduce conflict in the negotiations and to maximize my gains.
For example, the Chinese and Japanese cultures prefer establishing relationships during negotiations rather than contracts which are preferred by the Americans. Thus, if I was undertaking business negotiations with the Chinese, I would seek to establish long-term relationships instead of going for short-term gains.
Importance of Legal Factors
Global negotiations are usually governed by both the international law and the laws of the countries of the participating parties. Before engaging in this form of negotiations, it is essential to consider the relevant laws and whether they affect you adversely or favorably as a party. If I was holding negotiations with a Chinese counterpart on a deal relating to e-commerce, I would be very diligent in searching for all Chinese laws concerning internet privacy since this country has long been known to have very stringent laws in this area.
Importance of Economic Factors
Economic factors play a key role in global negotiations. Factors such as a country’s GDP, interest rates, and exchange rates must be taken into account before entering into negotiations.
It is, therefore, crucial to seek information on key economic indicators of the negotiating parties’ countries and to employ this to one’s advantage. For example, if I was doing negotiations and my counterparty comes from a country with low GDP, I could use this knowledge to claim that his or her country’s business climate is poor and, thus, I should be given a better deal.
Key Concepts Applicable to my Discipline
I work in a Clinical Research Organization (CRO). Some business concepts that are applicable to this field are investment evaluation and assessing returns (Hulley, 2007).
Investment Evaluation
CROs are involved in conducting clinical research trials. It is vital to view clinical research as a form of investment which should be evaluated in terms of costs and benefits. Those researches whose benefits exceed costs should be approved and those whose costs exceed benefits disapproved.
Assessing Returns
Returns from clinical research should be evaluated from a long-term perspective. Thus, the economic and social benefits need to be quantified in numerical terms and the discounted present value determined. This way, it would be very easy to assess the value of each research process.
References
Hulley, S. (2007). Designing clinical research: an epidemiologic approach. Baltimore: Lippincott Williams & Wilkins.
Pandey, I (2008). Financial management. McGraw Hill. New Delhi
Thompson, L. (2005). The Mind and heart of the negotiator. Upper Saddle River, NJ: Prentice-Hall.