The time value of money relevant to making financial decisions because:
- Investment decision:
Investment in current tear and cash inflows received in future from that Investment can he measured and evaluated under the concept of time value of money. This measurement is being done on the basis of the net present value which is not possible to do without the sense of time value money. So it is very necessary to have to take help from it in evaluating the investment proposal.
- Higher income possibility:
The volume of income or the rate of interest varied over So investor has to take a decision about the timing of income received considering the same amount at a different time or different amount at the same time. In this regard, the knowledge of time value of money is very significant.
- Determination of loan installment:
Generally, present loans or credits are repaid in future at installment basis, and to determine those installments time value of money needs to be considered.
- Determination of interest rate:
Investment corporations are collecting the rate of interest on their venture and/or depositor groups are on their deposits. The interest rate on those loan and deposits are determined under the concept of time value of money.