The time value of money is a fundamental concept in finance from "summary" of How Finance Works by Mihir Desai
The time value of money is a fundamental concept in finance because it recognizes the fact that a dollar today is worth more than a dollar in the future. This concept is grounded in the principle that money has a time dimension to it - a dollar received today can be invested and grow over time, earning interest or returns. In contrast, a dollar received in the future is worth less because it cannot be invested or put to productive use immediately. Understanding the time value of money allows individuals and businesses to make better financial decisions by comparing cash flows that occur at different points in time. By discounting future cash flows back to their present value, finance professionals can assess the true value of an investment or a financial decision. This is crucial for evaluating the profitability of projects, making investment choices, and d...
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