1 The Time Value of Money Student’s Name Institution Course Instructor Date of Submission 2 The Time Value of Money The time value of money is a phrase used to show that the value of money held today is worth more than the value of money held or promised in the future. Primarily, this concept is based on the reality that money held today can be invested, multiplied, and/or used to gain interest whereas money promised in the future is subject to inflation which may downgrade its value. Therefore, managers, investors, and even ordinary persons must understand the difference between present value and future value and how the two concepts influence the value of money. The underlying significance of understanding the time value of money is grounded upon the fact that the value of a dollar today will not be the same in a year or after two years. Indeed, it is expected that the value will decrease progressively, but this should not be considered reason enough not to save neither should it become the reason to spend money outrageously (Muda & Hasibuan, 2018). When it comes to financial managers, it is highly critical for them to effectively grasp the concept of the time value of money and it is fundamental to the decisionmaking process involving money (Delaney, 2016). Primarily, the managers must understand that the financial decisions they make today have implications that extend for several years to come, and they determine whether the decisions were profitable or detrimental ...
Purchase document to see full attachment