Time Value of Money

Businesses need to understand how their money, investments, or loans are a benefit or detriment to them over time. To gain a better understanding, one should contemplate the time value of money (TVM). According to Benshoof (2005), "The time value of money quantifies the value of money over time. The time value of money depends upon the rate of return or interest rate that can be earned by investing the current money on hand" (p. 74). To …

…merely an indication of potentially when the investment could double in value. Conclusion TVM is clearly a useful financial concept for managers to apply in their business practices. Figuring present and future values of the firm's annuities allows for executives to calculate an expected rate of return on financial dealings. Through the understanding of TVM, managers can have an enhanced image of how the company's investment opportunities are working for the betterment of the firm.