Time Value of Money

In financial management, one of the most important concepts is the Time valuate of Money (TVM). Time Value of Money concepts seconds a bus or togors understand the benefits and the future cash flow to help justify the initial cost of the project or investment. more of the as put ins businesses and individuals own are financed with coin borrowed from others, so the understanding of TVM is essential to making good buying decisions. To recognize how annuities, a set of fixed payments over a specified length of time, assume the time esteem of capital, managers need to consider the factors of interest rate, luck costs, future and present values of specie, and compounding. (Investopedia, 2006)

Opportunity Costs

Many times firms need to dissolve on how to best utilize its cash on hand. Should they invest it in the stock market or purchase more equipment with the hopes that it will increase productivity and profitability? A unsentimental decision in some cases, but businesses should determine which is the wiser superior based on their financial situation. The opportunity cost associated with these choices is whether or not the company could have earned more coin by choosing to do something else with the funds. TVM help managers in figuring come forth which of the opportunities presented is the best option.



The preferred alternative is one that increases the companys monetary value today as opposed to a later topographic point in time.

Interest Rates and Compounding

In most business cases, borrowing money is not necessarily a free enterprise. It costs companies money to obtain funds on credit to finance non-homogeneous aspects of their business. The fee that a borrower pays to a lender for use of its money is interest. The annual percentage rate (APR) makes assumptions based on plain interest, which is interest only earned on...

If you want to get a full essay, order it on our website: Ordercustompaper.com



If you want to get a full essay, wisit our page: write my paper