Institut Supérieur de Commerce, d’Agriculture Institut Supérieur de Commerce, d’Agriculture
et de Nouvelles Technologies ( ISCANT) et de Nouvelles Technologies ( ISCANT)
LESSON TYPE : Reading for comprehension
TEXT : Time Value of Money and Discounted Cash Flow
LEVEL: 2 BTS/FCGE
TEACHER: Mr. AKA
CONTACTS: 0709516297 / 0101312045
E-MAIL: [email protected]
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ACTIVITY 1 : Read the text quickly, and tick (√) the best option to the statement
below to find out its general idea.
The text is about :
a. The Time Value of Money (TVM) and its application through the Discounted Cash
Flow (DCF) method.
b. How crucial the Time Value of Money is in finance.
c. How to calculate investment.
Time Value of Money and Discounted Cash Flow
The time value of money (TVM) is a fundamental principle in finance, based on the
concept that the value of money changes over time. This principle asserts that a dollar
today is worth more than a dollar tomorrow due to its potential to earn returns over time.
The concept is particularly important when evaluating investment opportunities.
Discounted Cash Flow (DCF) is a method used to calculate the present value of future
cash flows by applying a discount rate. This allows businesses and investors to assess
whether an investment is worth pursuing. In DCF, the further into the future a cash flow
occurs, the less value it holds today. To apply DCF, future cash flows are estimated and
then discounted using a rate that reflects the investment’s risk and the opportunity cost of
capital. The DCF method is widely used in business valuation, project evaluation, and
financial decision-making, providing a more accurate assessment of the true worth of
future cash inflows. By understanding TVM and DCF, students can better grasp the
complexities of financial analysis and make more informed investment decisions.
Adapted from the internet for classroom usage
1
INPUT : Vocabulary words and phrases from the text
1. Time Value of Money (TVM) : Valeur temporelle de l'argent (VTA)
2. Discounted Cash Flow (DCF) : Flux de trésorerie actualisé (FTA)
3. Present value : Valeur actuelle
4.Discount rate : Taux d'actualisation
5. Opportunity cost of capital : Coût d'opportunité du capital
6.Business valuation : Évaluation d'entreprise
7.Project evaluation : Évaluation de projet
8.Financial decision-making : Prise de décision financière
ACTIVITY 2: Complete the sentences below using the following terms:
Time Value of Money (TVM), Discounted Cash Flow (DCF), Present value, Discount rate,
Opportunity cost of capital, Business valuation, Project evaluation, financial decision-making
1. The concept of __________ explains that a dollar today is worth more than a
dollar in the future due to its earning potential.
2. The __________ method is used to calculate the current worth of future cash
flows by applying a specific rate.
3. When calculating __________, we determine how much a future amount of
money is worth today.
4. The __________ reflects the level of risk and the return expected from an
investment when calculating future cash flows.
5. The __________ refers to the potential return lost when choosing one investment
over another.
6. Companies often perform __________ to determine the financial value of their
assets or entire organization.
7. Before starting a new initiative, businesses conduct __________ to assess whether
it is financially viable and worth pursuing.
8. Sound __________ requires understanding financial principles to make informed
choices about investments and resource allocation.
2
ACTIVITY 3 : Read the text carefully and answer these questions.
1. What is the Time Value of Money (TVM) principle based on ?
2. Why is a dollar today considered more valuable than a dollar tomorrow?
2. Why is the TVM concept important in finance?
3. In what context is TVM particularly crucial?
3. What is the purpose of the Discounted Cash Flow (DCF) method?
4. How does DCF help businesses and investors?
4. How does the timing of a cash flow affect its value in DCF ?
5. What factors are considered when applying a discount rate in DCF?
5. In which areas is the DCF method commonly used?
6. How does DCF contribute to financial decision-making?
7. What benefits do students gain from understanding TVM and DCF?
8. How can this understanding improve investment decisions?
ACTIVITY 4 : With your partner, discuss the following :
In your opinion, how important are the concepts of Time Value of Money (TVM)
and Discounted Cash Flow (DCF) in making financial decisions? Consider their
role in evaluating investments and their impact on business strategies.
And then write down a 10 line paragraph that highlights your position. Your
spokesperson will read your work to the class.
HOMEWORK : At home, listen to the audio of the text, and learn to read it
correctly. Also, translate the following into French:
The time value of money (TVM) is a fundamental principle in finance, based on the
concept that the value of money changes over time.
