Asked by Songqing Jiang on Jun 02, 2024
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Neither the net present value nor the internal rate of return methods of evaluating investments consider the time value of money.
Net Present Value
A method used in capital budgeting to evaluate the profitability of an investment by calculating the difference between the present value of cash inflows and outflows.
Internal Rate of Return
A metric used in capital budgeting to estimate the profitability of potential investments, calculated as the discount rate that makes the net present value of all cash flows from a particular project equal to zero.
Time Value
The principle that money currently in hand is valued higher than an identical amount received in the future, owing to its capacity to generate earnings.
- Acquire knowledge of the importance and employment of the time value of money in decisions related to investments.
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Learning Objectives
- Acquire knowledge of the importance and employment of the time value of money in decisions related to investments.
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