ECONOMICS
COST BENEFIT ANALYSIS
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
Cash in and cash out
|
|
|
Money tomorrow is worth more than money today
|
|
|
Money today is worth more than money tomorrow
|
|
|
Projects with more risk have a lower discount rate
|
Detailed explanation-1: -Money has time value. In simpler terms, the value of a certain amount of money today is more valuable than its value tomorrow. It is not because of the uncertainty involved with time but purely on account of timing. The difference in the value of money today and tomorrow is referred to as the time value of money.
Detailed explanation-2: -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-3: -There are two main reasons why money in the present is worth more than an equal amount in the future: Inflation and Opportunity Cost. Inflation is a phenomenon in which the prices of goods and services increase gradually over time.
Detailed explanation-4: -Understanding Present Value (PV) Present value is the concept that states an amount of money today is worth more than that same amount in the future. In other words, money received in the future is not worth as much as an equal amount received today. Receiving $1, 000 today is worth more than $1, 000 five years from now.
Detailed explanation-5: -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.