Question

Discuss why companies consider the concept of time value of money (e.g. net present value) in analyzing the total cost of ownership.

Answer 1

The time value of money is the idea that cash you have now is worth more than the indistinguishable whole later on because of its latent capacity acquiring limit. This center rule of account holds that gave cash can procure premium, any measure of cash is worth more the sooner it is gotten.

• Time value of money is likewise some of the time alluded to as present limited worth. Time value of money depends on the possibility that individuals would prefer to have cash today than later on.
• Given that cash can procure progressive accrual, it is more significant in the present instead of things to come.

The time value of money is a significant idea to financial specialists in light of the fact that a dollar close by today is worth in excess of a dollar guaranteed later on. The dollar close by today can be utilized to contribute and win premium or capital increases. A dollar guaranteed later on is really worth not exactly a dollar today on account of expansion.

If cash can gain a premium, this center rule of account holds that any measure of cash is worth more the sooner it is gotten. At the most essential level, the time estimation of cash exhibits that, taking everything into account; it is smarter to have cash now instead of later.

• Present value figures out what an income to be gotten later on is worth in the present dollars. It limits the future income back to the current date, utilizing the normal pace of return and the number of periods. Regardless of what the current worth is, on the off chance that you contribute that current worth sum at the predetermined pace of return and number of periods, the venture would develop into the future income sum.
• Future value figures out what an income got today is worth later on, in light of loan costs or capital additions. It figures what a current income would be worth later on, on the off chance that it was contributed at a predetermined pace of return and number of periods.

Both present worth and future worth consider aggravating premium or capital additions, which is another significant perspective for financial specialists to consider when searching for wise speculations.

Time is actually money. The estimation of the cash you have now isn't equivalent to it will be later on. Realizing how to decide time value of money by ascertaining present and future worth can assist you with recognizing the value of speculations that offer returns at various occasions.