FIN501 MOD2 CASE2-Time Value of Money

FIN501 MOD2 CASE2-Time Value of Money - Time Value of Money...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
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, 1995-2011). 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 outlay--present value (incurred in the present). Future cash flows along with the initial outlay cannot be compared when making a decision (Keown, Martin & Petty, 2007).
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

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.

Page1 / 7

FIN501 MOD2 CASE2-Time Value of Money - Time Value of Money...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online