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Time Value of Money – Present and Future Values
TUI University
November 22, 2011
Time Value of Money – Present and Future Values
The idea behind the concept of present value or time value of money is that $1
received today is greater than a $1 received in some years from now (Mayes, 19952011).
Present value is current value based on a specified future sum. This concept is important
in evaluating investment proposals. Present value is a basic concept used in corporate
finance. Because of its importance in every aspect from project evaluation to valuing
equity bond and other securities, present value is taught very first in the class.
Obtaining the present value of future cash flows and comparing the sum to the
initial outlay to determine whether the proposed project is acceptable or not is significant.
If the sum of the present value of all the future cash flows is greater than the initial
outlay, the project is accepted. However, if the sum is less than the initial cash outlay, the
investment proposal is usually rejected. Future cash flows must be discounted to the
present so that they are comparable to the initial outlaypresent value (incurred in the
present). Future cash flows along with the initial outlay cannot be compared when
making a decision (Keown, Martin & Petty, 2007).
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This note was uploaded on 03/25/2012 for the course FIN 501 taught by Professor Dr.joshuashackman during the Winter '10 term at Trident Technical College.
 Winter '10
 Dr.JoshuaShackman
 Time Value Of Money, Future Value

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