Explain, in your own words, the concept of the time value of money in a relationship...

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Finance

Explain, in your own words, the concept of the time value ofmoney in a relationship to both the simple direct investment andtiming for maximizing the value of a corporations excess cash aswell as for cash flows of projects and capital/project investmentanalysis. Be sure to discuss the limitation of time value analysisin terms of the component financial data points used in theunderlying formulas and financial analysis results.

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The concept of time value of money says that the value of a given amount in future shall be less than its value today This can be understood with the following example If you are offered the choice between having 10000 today and having 10000 at a future date you will usally prefere to have 10000 now Similarly if the choice is between payin 10000 now and paying 10000 at a later date you will prefere to pay later In the first case by receiving 10000 early you can invest 10000 and earn interest on the same Similarly in the second case by deferring the paymentyou can earn interest by keeping the money in the bank Therefore the time gap allowed help us to make some money This incremental gain is the time value of money Otherthan interest there are some other reasons why See Answer

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