Time value of money

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Investment and funding appraisal.


Time value of money is the concept that the value of money is linked to time because of its capacity to earn interest over time.

Thus, a given amount of money available today is worth more than a given amount of money to be received tomorrow, because the amount available now can be invested immediately.

The time value of money is reflected in the charging of interest for the use of money, and also in discounted cash flow analysis.

All other things being equal, the time value of money means:

  • Earlier receipts are better than later ones, for the one receiving.
  • Later payments are better - compared with earlier payments - for the one paying.
  • Later receipts are worse, for the one receiving.
  • Earlier payments are worse, for the one paying.

See also