TIME VALUE OF MONEY

TIME VALUE OF MONEY

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  PRESENTER KAVYA N 1ST M.Com Underthe guidance of Sundar B. N. Asst. Prof. & Course Co-ordinator GFGCW, PG Studies in Commerce Holenarasipura
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  1.INTRODUCTION 2.MEANING 3.DEFINITI0N 4.CONCEPTS 5.SIGNIFICANT 6.CONCLUSION 7.BIBLOGRAPHY
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  .The time valueof money (TVM) is the idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. This core principle of financial holds that ,provided money can earn interest , any amount of money is worth more the sooner it is received . • Time value of money is an important concept in financial management.it can be used to compare investment alternatives and to solve problems involving loans, leases , savings.
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  Time value ofmoney means that value of a unite of money is different in different time period. BENTON “ Time value of money is the principle that money received is the resent is worth more than the same amount received in the future .
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  • BOOK VALUECONCEPT:- Book value are the historical values firm . Assets are recorded on the basis of written values if these are depreciable assts and in case of intangibles asset value is calculated by deducting value from its acquisition price • GOING CONCERN CONCEPT:-this is the value received by the seller of a business when he sells his business in running and operating conditions • MARKET VALUE CONCEPT:- Market value of a security is the current price at which security can be sold in the market .market price of a security can be more than the book value of the security if the firm is expected to earn high profit in the future . • LIQUIDATION VALUE CONCEPT :- This is the value that security will have at the time of termination /liquidation of the business. This value may be lower than the market value as the business as come to an end • CAPITALISED VALUE CONCEPT :-This is the some of present value of cash flows from a security discounted at the desired rate of return .the desired rate of return depends up on the risk level of the security .
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  A.INFLATION :- Becauseof inflationary condition the rupee today has a higher purchasing power than who have to receive the money prefer to receive the same as early as possible ,while those who have to the money try to delay the payment . B.UNCRERTANITY:- Since the future is characterized by uncertainty ,individual /business concerns prefer to have current income rather than having the same payment at a later date they have an apprehension that the party making the payment may default due to insolvency or other reasons. C.PREFERANCE FOR PRESENT CONSUMPTION :- Both due to uncertainty and inflationary conditions, individuals prefer the consumption to future consumption . they do not wish to save for the future by curtailing current consumption. D.IN INVESTMENT DECISION:- Small business often have limited resources to invest in business operations, activities and expansion . One of the factors we have to look at is how to invest, is the time value of money.
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  E. OPPORTUNITIES FORREINVESTMENT:-money can be employed to generate real return , individuals business concern reinvest the money at a certain rate so as to money at a certain rate so as to have some yield on it. F. IN CAPITAL BUDGETING DECISION:- When a business choose to invest money in a project such as an expansion , a strategic acquisition or just the purchase of a new piece of equipment—it may be years before that project begins producing a positive cash flow. The business needs to know whether those future cash flows are worth the up front investment. • opportunity cost causes money to change value as it moves over time . • Can be applied to a single dollar amount-also called a lumpsum. • Can also be applied to an annuity.
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  • FINANCING DECISION:-Financingdecision concerned with designing optimum capital structure and raising funds from the least cost sources. The concept of time value of money is equally useful in financing decision, especially when we deal with comparing the cost of different sources of financing. It is concerned with the borrowing and allocation of funds required for the investment decisions. • The effective rate of interest of each source of financing is calculated based on the time value of money concept. Similarly, in leasing versus buying decision, we calculate the present value of the cost of leasing and the cost of buying. • The present value of costs of two alternatives is compared against each other to decide on an appropriate source of financing. The objective of financial decision is to maintain an optimum capital.
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  i. By allthe above discussion we get know about the value of money with respect to time. ii. Any time you are evaluating an investment over time, use time-value of money. iii. We learn the importance of time value of money how it will help in making different decision which will provide profit to him .
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  1.Introduction to timevalue of money (retrieved from https//e.m.Wikipedia.org.) date -14/4/2021 2.Concepts of time value of money ( retrieved from https://www.slideshare.net.)date -14/4/2021