Discussion 2 Week 1 Impact of Financial Concepts Assignment

Discussion 2 Week 1 Impact of Financial Concepts - Assignment Example This means you would be responsible for paying taxes on money that you may not have even received yet. On the flipside, expenses can be incurred before you actually pay them out – meaning you can reduce your tax liability before paying out. This is at the core of finance. The time value of money tells you that $1 today is worth more than $1 tomorrow. The reason is because you can invest that $1 today and have it be worth more tomorrow. What does this mean for your business? You want to hold onto your money as long as possible and receive money as quickly as possible. You can do this by paying your bills right before they are due and finding ways to have your customers pay you as soon as possible. Keep in mind this ignores other psychological factors like your vendors being happy if you always pay them immediately (which could lead to more flexible payment terms or even discounts). The more risk you take, the more return you should expect. If given two options with the same return, you should always choose the option that has the least amount of risk. Likewise if given two options with the same level of risk, you should always choose the option that has the highest return. Opportunity cost is the cost associated with choosing one option and forgoing another. For example, a high school graduate has the option of going to college or working full time. If she chooses college, the cost of her decision isnt just the cost of tuition and books, but the money she is missing out on by not working fulltime for four years while she is in school. If she chooses to work full time, the opportunity cost is the amount of money she would have made (in excess of her regular pay) for having a college degree for the rest of her life. So lets say she can make $10/hr without a college degree, or $15/hr with a college degree. She needs to take into account the $5/hr she will lose out on for the rest of her life by not going to college now. There are also