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Asked a question 4 years ago

What is the relevance of time value of money in financial decisions?

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Time value of money is the value of money today is different from the value in future. Money's worth now as compared to the future money's worth is time value of money.


Inflation period: In inflation period, the value of a rupee today represents a greater power than future.

Risk: There is uncertainty if the money will be received in future or not. Preference is only for present consumption. Most of the people today prefer current consumption over future consumption.

Investment: Many people and companies prefer present consumption because there are many opportunities available for investment.

Many companies having issues involoving cash flow at different point of time, consideration of time value of money is required.