Time Value of Money

Subject  > Businesss Research Papers  > Accounting

In financial management, one of the most important concepts is the Time Value of Money (TVM). Time Value of Money concepts helps a manager or investors understand the benefits and the future cash flow to help justify the initial cost of the project or investment. Many of the assets businesses and individuals own are financed with money borrowed from others, so the understanding of TVM is crucial to making good buying decisions. To recognize how annuities affect the time value of money, managers need to consider the factors of interest rate, opportunity costs, future and present values of money, and compounding. Interest Rates and CompoundingIn most business cases, borrowing money is not necessarily a free enterprise. It costs companies money to ...

... Rule of 72“In finance, the rule of 72 is a method for estimating an investment's doubling time or halving time. These rules apply to exponential growth and decay respectively, and are therefore used for compound interest as opposed to simple interest calculations” (Wikipedia, 2008). For example, if one would like to know how long it would take to double a given amount of money at eight percent interest, divide 8 into 72 and get 9 years. When a company can quickly calculate the return on investment, they will be able to make quicker and more informed decisions in regard to the investment or budget decision. The Time Value of Money is an important concept in financial

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