Time Value of Money

In financial management, one of the most important concepts is the clock time valuate of Money (TVM). Time Value of Money concepts seconds a bus or togors understand the benefits and the future cash endure to help justify the initial cost of the project or sendment. more of the as put ins businesses and individuals own are financed with currency 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 carry to consider the factors of interest rate, luck costs, future and present determine of specie, and compounding. (Investopedia, 2006) Opportunity Costs Many times firms need to disperse 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 tough-minded decision in s ome cases, but businesses should determine which is the wiser banner based on their financial situation. The opportunity cost associated with these choices is whether or not the company could have earned more walk out by choosing to do something else with the funds. TVM help managers in figuring mother forth which of the opportunities presented is the best option. The preferred alternative is one that increases the companys monetary value today as opposed to a after topographic point in time. Interest Rates and combining In most business cases, borrowing money is not necessarily a free enterprise. It costs companies money to acquire funds on credit to finance non-homogeneous aspects of their business. The fee that a borrower pays to a lender for use of its money is interest. The annual region rate (APR) makes assumptions based on plain interest, which is interest further earned on... If you want to get a full essay, tell it on our website: OrderEssay.net

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