The document discusses the concept of time value of money. It defines time value of money as the principle that money received in the present is worth more than the same amount received in the future. This is because money available now can be invested and earn interest. The document also discusses how time value of money is an important concept in financial management and capital budgeting decisions, as it allows comparing investment alternatives and cash flows over different time periods. It concludes by emphasizing the importance of considering time value of money when making various financial decisions to maximize profits.
3. .The time value of money (TVM) is the idea that money
available at the present time is worth more than the same
amount in the future due to its potential earning capacity.
This core principle of financial holds that ,provided money
can earn interest , any amount of money is worth more the
sooner it is received .
• Time value of money is an important concept in financial
management.it can be used to compare investment
alternatives and to solve problems involving loans, leases
, savings.
4. Time value of money means that value of a unite of
money is different in different time period.
BENTON “ Time value of money is the
principle that money received is the resent is worth more
than the same amount received in the future .
5.
6. • BOOK VALUE CONCEPT:- Book value are the historical values firm . Assets are recorded
on the basis of written values if these are depreciable assts and in case of intangibles
asset value is calculated by deducting value from its acquisition price
• GOING CONCERN CONCEPT:-this is the value received by the seller of a business when
he sells his business in running and operating conditions
• MARKET VALUE CONCEPT:- Market value of a security is the current price at which
security can be sold in the market .market price of a security can be more than the
book value of the security if the firm is expected to earn high profit in the future .
• LIQUIDATION VALUE CONCEPT :- This is the value that security will have at the time of
termination /liquidation of the business. This value may be lower than the market value
as the business as come to an end
• CAPITALISED VALUE CONCEPT :-This is the some of present value of cash flows from a security
discounted at the desired rate of return .the desired rate of return depends up on the risk level
of the security .
7.
8. A.INFLATION :- Because of inflationary condition the rupee today has a
higher purchasing power than who have to receive the money prefer
to receive the same as early as possible ,while those who have to the
money try to delay the payment .
B.UNCRERTANITY:- Since the future is characterized by uncertainty
,individual /business concerns prefer to have current income rather
than having the same payment at a later date they have an
apprehension that the party making the payment may default due to
insolvency or other reasons.
C.PREFERANCE FOR PRESENT CONSUMPTION :- Both due to
uncertainty and inflationary conditions, individuals prefer the
consumption to future consumption . they do not wish to save for
the future by curtailing current consumption.
D.IN INVESTMENT DECISION:- Small business often have limited
resources to invest in business operations, activities and expansion .
One of the factors we have to look at is how to invest, is the time
value of money.
9. E. OPPORTUNITIES FOR REINVESTMENT:-money can be employed to generate real
return , individuals business concern reinvest the money at a certain rate so as to
money at a certain rate so as to have some yield on it.
F. IN CAPITAL BUDGETING DECISION:- When a business choose to invest money in a
project such as an expansion , a strategic acquisition or just the purchase of a new
piece of equipment—it may be years before that project begins producing a
positive cash flow. The business needs to know whether those future cash flows
are worth the up front investment.
• opportunity cost causes money to change value as it moves over time .
• Can be applied to a single dollar amount-also called a lumpsum.
• Can also be applied to an annuity.
10. • FINANCING DECISION:-Financing decision concerned with designing
optimum capital structure and raising funds from the least cost sources.
The concept of time value of money is equally useful in financing
decision, especially when we deal with comparing the cost of different
sources of financing. It is concerned with the borrowing and allocation
of funds required for the investment decisions.
• The effective rate of interest of each source of financing is calculated
based on the time value of money concept. Similarly, in leasing versus
buying decision, we calculate the present value of the cost of leasing
and the cost of buying.
• The present value of costs of two alternatives is compared against each
other to decide on an appropriate source of financing. The objective of
financial decision is to maintain an optimum capital.
11. i. By all the above discussion we get know about the
value of money with respect to time.
ii. Any time you are evaluating an investment over time,
use time-value of money.
iii. We learn the importance of time value of money how it
will help in making different decision which will provide
profit to him .
12. 1.Introduction to time value of money (retrieved from
https//e.m.Wikipedia.org.) date -14/4/2021
2.Concepts of time value of money ( retrieved from
https://www.slideshare.net.)date -14/4/2021