2007-02-14 17:10:09 · 2 answers · asked by kitsune12 1 in Business & Finance ➔ Investing
Time value of money is important to the firm because the firm should know how much exactly is required to invest at present for the future cash flows. For example in the individual analogy if a person wants a cash flow of x dollars per month for perpetuity that is for time horizon not in the near future then he will have to know how much exactly he has to invest today at the prevailing interest rate in CD or something which pays annuity.
Similar wane companies has to know how much exactly to invest not more or not less. They have to know this when they make investments, like capital equipments, acquisitions etc;. In capital equipments even replacement decisions are included and the whole conept is called Capital Busdgetting.
2007-02-15 03:17:43 · answer #1 · answered by Mathew C 5 · 0⤊ 0⤋
A dollar earned today will probably only be worth 80 cents in ten years time due to the effects of inflation. So a firm must look at the future value of an investment to make sure it is profitable.
2007-02-14 17:17:05 · answer #2 · answered by sbd41 1 · 2⤊ 0⤋