ACCT 301 Time Value of Money(USE AS GUIDE ONLY)

ACCT 301 Time Value of Money(USE AS GUIDE ONLY)

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TIME VALUE OF MONEY
Time Value of Money
ACCT 301-B03
TIME VALUE OF MONEY
Abstract
A dollar today is worth more than a future dollar received because today’s dollar can be
invested to earn interest while the future dollar is held in the control of another. This paper
introduces the key concepts of the Time Value of Money (TVM), tools used for computation and
some practical applications for the use of time value of money formulas. TVM is a key factor in
business and economic decisions. The use of TVM in business is essential for assisting people in
making investment decisions and evaluating alternatives that have fluctuating cash flow patterns
over time. For example, compound interest (or rate of return) calculations are used to determine
a financial institutions annual percentage rate (APR) for disclosure to account holders and
banking regulators or discounting, which is inversely related to compounding, used in the
valuation of stocks, bonds, business ventures, real estate and capital expenditure projects. There
are plenty of applications of time value of money in finance. The Time Value of Money is
related to the concept of opportunity cost in economics. The cost of any decision includes the
cost of the alternative opportunity choices declined.

Document Outline

Abstract

Time Value of Money

Present Value Single Amount

For dollar amounts in the present, we use the term "Present Value" or the initials "PV". Present Value describes the process of determining what a cash flow to be received in the future is worth in today's dollars. Therefore, the Present Value of a ...

All business investment decisions should be based on Discounted Cash Flow (DCF) decision tools such as Net Present Value (NPV). Once the incremental after-tax cash flows associated with an investment project are identified, the process of calculating...