Answer to Question #289452 in Management for Anjali

Question

Why is consideration of the time value of money important in financial decision making? How can time be adjusted

Answer 1

Money value changes overtime and that why financiers usually consider time as very important. For example investing $100 today, it will not be the same value 5 years to come. It may have appreciated or depreciated. There is the rate at which money value changes overtime and that's why time is a key when carrying out capital budgeting.

Time value can be adjusted through either of the following methods: Net Present Value (NPV), Internal Rate of Return (IRR), Discounted payback period and profitability index.