Time value of money

&
concept of inflation
 Why money has time value?
oHigher preference for present consumption than future
consumption.

oPurchase power of the currency declines with time due to

inflation.

oMoney received today can be invested else where to earn

suitable return

oDiscounting – process of findingthe present value of a future

cash flow or a series of future cash flows.

oComponding- process of finding the future value of present

cash flows.