**Competency**

Determine current values of cash streams utilizing discounted cash flow techniques.

**Student Success Criteria**

View the grading rubric for this deliverable by selecting the “This item is graded with a rubric” link, which is located in the Details & Information pane.

**Scenario**

You are currently a benefits analyst within Book Bliss Company, a small family-owned corporation that manufactures magnetic bookmarks. Currently, the members of management have been funding their own retirement plans, and it has begun to be costly and not commensurate with their salaries. Book Bliss management would like to provide a contributory pension plan for five current members of the management team.

Management believes they can afford to invest $10,000 per month for the next 10 years. They anticipate the rate of return will be 12%. At the end of the 10 years, they expect retiring employees to start withdrawing from this pension plan. The anticipated longevity after retirement is expected to be 20 years, and management believes the rate of return on the investment to continue through the 20 years of retirement payout.

Management is not knowledgeable about the time value of money and why it makes a difference if a dollar is invested today versus in 20 years. Management has requested your assistance in determining relevant pension plan values so they can finalize the components of the pension plan.

**Instructions**

Using the following Excel template, develop a spreadsheet that covers the following:

**Module 5 Time Value of Money Template.xlsx**

- Explain the concept of the time value of money, including the present and future value of $1 and the present and future value of an annuity. Explain the difference between the annuity payment at the beginning and the end of the period.
- Demonstrate the future value of the monthly cash investments for the next 10 years, given the investment earns the projected 12% annual return.
- Calculate the total monthly payment that can be withdrawn from the investment over 20 years, given the anticipated 12% annual rate of return continues to be met through the 20 years of retirement. Provide management with the monthly payment amount that will be available to pay out in monthly pension amounts.
- Assuming all five members of management will receive the same monthly annuity payment, provide management with the proposed monthly retirement payment that can be offered to these five members of management.
- Use the built-in cash flow functions in Excel to perform all calculations, explaining the values you entered for the function in the adjacent cells.

**Assessment Requirements/Submission Requirement:**

- Excel Template

**A – 4 – Mastery**

Accurate and robust explanation of Time Value Money. Highly accurate annuity payment calculation.

**A – 4 – Mastery**

Presentation accurately projects rate of return.

**A – 4 – Mastery**

Presentation accurately projects rate of payout for employees

**A – 4 – Mastery**

Presentation accurately projects rate of payout for management

**A – 4 – Mastery**

Accurate Excel calculations and clear and articulate explanations of values.