The time value of money is an important concept because it is one of the fundamental concepts used in making investment and other financial decisions. It is the foundation of the concept of present value.Know More
The fundamental premise of the time value of money is that money received earlier is worth more than money received at a later time. Over time, the value of money changes due to outside factors such as inflation and interest. Inflation is an increase in the general level of prices, and, over time, it decreases the value of money. As a result, a given amount of money will purchase a smaller basket of goods in the future. Interest is money paid for the use of money, as in an auto or home loan.
Receiving cash sooner rather than later is preferred for a couple of other reasons. First, individuals generally prefer present consumption to future consumption. To entice a consumer to forgo present consumption in favor of future consumption, he must be offered more future consumption in exchange. The cost of future goods in today's money is known as their present value. Also, money now is worth more than money later because of the risk that future payment might never be received. The reasons for this risk include default and death.Learn more about Financial Calculations
Financial accounting is important because it provides an organization's stakeholders with business statements, allowing them to know if the organization is making or losing money. This information is essential in determining if a company is able to maintain profitability, according to Accounting-Careers-Guide.com.Full Answer >
International finance is important for determining exchange rates, comparing inflation rates, investing in foreign debt securities, ascertaining economic conditions in other countries and investing in foreign markets, according to For Dummies. The International Financial Reporting Standards (IFRS), adopted by more than 120 countries as of April 2011, are an important backbone of international finance and offer numerous benefits, according to Investopedia.Full Answer >
The formula to find the present value of an annuity is: C x [1-[1/(1+i)n]]/i. "C" represents the dollar amount of each payment received. The letter "i" represents the rate of interest. The letter "n" represents the total number of payments received periodically.Full Answer >
Land value per acre is calculated by dividing the appraisal value of the property by the size of the land in acres. If these numbers are unknown, it may be necessary to hire an appraiser and a surveyor to determine the accurate value and size of the land before proceeding.Full Answer >