CHAPTER 6

Time Value of Money

The Present Chapter

It discusses the relevance of “time value of money” in capital budgeting decision.

INTRODUCTION

Every capital budgeting decision should satisfy the following criteria:

    •  Must consider all of the project’s cash flows.

    •  Must consider the “Time Value of Money.”

So, capital budgeting decisions would be unrealistic if the time value of money is not duly incorporated in the capital investment analysis.

What Is Time Value of Money?

Time value of money describes the relationship between the value of rupee today and value of rupee in future. It refers to the purchasing power of money exercised by an individual with the changing times. Thus, Re 1 received today is considered to be much more ...

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