Module 2 SLP - Time Value of Money



Module 2 SLP - Time Value of Money

Introduction

The concept of time value of money has significant implication with respect to making investment decisions. Wal-Mart has been chosen for analysis in this paper. Wal-Mart Stores is the world's largest retailer and grocery chain by sales. According to its annual report, the company generated consolidated revenue of $419.0 billion in fiscal 2010 (latest annual data available) through its 8,970 stores worldwide. Wal-Mart operates three separate divisions: Wal-Mart US, representing 62.1% of revenue and 42.4% of establishments; Sam's Club, representing 11.8% of revenue and 6.8% of establishments; and Wal-Mart International, representing 26.1% of revenue and 50.8% of establishments (IBIS World, 2012). 

PART 1: Bond Evaluation Based on Risk Analysis

Different economic factors play an integral role in making appropriate decision. Factors that need to be account for making an investment decision include incorporating the level of risk involved, interest rates, inflation, expected rate of return, company's future outlook, duration of the investment, and risk averse/risk taking considerations (Ramagopal, 2008).

With growing sales, Wal-Mart US operating income also remained positive, steadily rising from $16.6 billion in 2006 to $20.0 billion in 2010. Income is expected to further increase slightly in 2011 about 1.4%. Nonetheless, higher operating expenses have offset some of the company's income, especially during the recession. Despite this change in the company's operations, Wal-Mart's US division's revenue is anticipated to increase on average 3.0% annually to total $262.3 billion over the five years (IBIS World, 2012). The company's strong performance can be attributed to rising traffic during the recession; as households faced high unemployment and low disposable income, they redirected their purchases toward low-priced items Wal-Mart sells.

Therefore, taking into consideration own personal risk preferences, inflation, interest rates, and the probability, chances that Wal-Mart will not be able to ...