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Essay / Research Paper Abstract
This 5 page paper considers what is meant by the time value of money. The paper explains the concept and then shows the concept has been used by companies in decision-making processes. The bibliography cites 5 sources.
Page Count:
5 pages (~225 words per page)
File: TS14_TEtimevl.rtf
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Unformatted sample text from the term paper:
in the future compared with today. The value in terms o interest rates, inflation and earning power will change and as such in most cases it is better to
have money today and use it, rather than wait for the same amount of money at some point in the future. Most companies will use this theory in some
form as there are several economic models that embody this principle, these include NPV (net present value) and IRR (internal rate of return). The principle behind this is not only
that there is inflation that will reduce the value of money. In most situations, even if the rate of inflation was zero, there would still be the preference to gain
the money today rather then in the future. There are several reasons for this which are also inherent in the time value of money paradigm. The first is the
perception of an opportunity cost. When money is held it can be used to create money value, this may be by gaining interest on a deposit account, it may be
used to gain some other form of value such as a business investment. In this way the money will be worth more in the future than it would be even
if there were no inflation due to the accumulation. Not having it may be seen as being an opportunity cost. There is also an increased certainty when money is
already held. When it is owed or due there is always some level of risk. There is no certainly, risks include the inability to collect the money due to the
failure of the person who owes it, either death or their own financial failure, as well as the potential inability to collect it due to similar failures. There is
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