For both accounting and finance, it is critical to understand the time value of money. This chapter begins with a review of compounding and discounting and then extends the discussion to explain the concept of net present value (NPV), why it is superior to other valuation methods (namely, the internal rate of return and payback) and reviews perpetuities (payments that continue forever) and their usefulness in valuation.
Discounting and Compounding
The time value of money is one of the most powerful concepts in finance. It is a concept that small children express when they say, “I want it now, not later, now!” Quite simply, the idea is that a dollar today (or anything, for that matter) is worth more than a dollar ...
Get Accounting for Fun and Profit now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.
