Question

1. Why is it important for business managers to be familiar with the time value of money concepts?

2. Why do we say money has time value?

Answer 1

1. Time value of money is important concept to the business managers because the money on hand today is more worth than money in the future.
2. This effect is because of inflation. And we can use the money available to invest properly and earn returns.
3. Time value of money is broken into two parts : Present value and future value.
4. Present Value = (future cash flows)/ (1+ rate of return)^number of periods.
5. Future value = Present value*(1+rate of return*number of periods)
6. Having knowledge of time value of money, helps to evaluate value of investments, so that proper investments can be made and returns can be earned.