COST ACCOUNTING
CAPITAL BUDGETING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Basic Reasons To Support The TVM Theory
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A dollar can be invested and earn interest over time, giving it potential earning power
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Money is subject to inflation, eating away at the spending power of the currency over time, making it worth less in the future.
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There is always the potential risk of not actually receiving the dollar in the future
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Money that we hold today is worth same anytime
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Explanation:
Detailed explanation-1: -The time value of money (TVM) is the concept that a sum of money is worth more now than the same sum will be at a future date due to its earnings potential in the interim. The time value of money is a core principle of finance. A sum of money in the hand has greater value than the same sum to be paid in the future.
Detailed explanation-2: -There are three reasons for the time value of money: inflation, risk and liquidity.
Detailed explanation-3: -The time value of money (TVM) is an important concept to investors because a dollar on hand today is worth more than a dollar promised in the future. The dollar on hand today can be used to invest and earn interest or capital gains.
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