Time Value of Money

In financial management, one of the most important concepts is the eon valuate of Money (TVM). Time Value of Money concepts seconds a bus or togors understand the benefits and the future cash feed in to help justify the initial cost of the project or authorisement. more(prenominal) of the as put ins businesses and individuals own are financed with mint borrowed from others, so the understanding of TVM is essential to making good purchasing decisions. To recognize how annuities, a set of fixed payments over a specified length of time, assume the time esteem of capital, managers emergency to consider the factors of interest rate, luck costs, future and present value of specie, and compounding. (Investopedia, 2006) Opportunity Costs Many times firms need to sack 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 greatest based on their financial situation. The opportunity cost associated with these choices is whether or not the company could have earned more specie by choosing to do something else with the funds. TVM help managers in figuring watch over forth which of the opportunities presented is the best option.

The preferred alternative is one that increases the companys fiscal value today as opposed to a posterior topographic point in time. Interest Rates and heighten In most business cases, borrowing money is not necessarily a free enterprise. It costs companies money to win funds on credit to finance non-homogeneous a spects of their business. The fee that a bor! rower pays to a lender for use of its money is interest. The annual lot rate (APR) makes assumptions based on plain interest, which is interest however earned on... If you want to get a full essay, recite it on our website: OrderEssay.net

If you want to get a full information about our service, visit our page: write my essay