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Financial Management
book

Financial Management

by Jack Alexander
January 2024
Intermediate to advanced content levelIntermediate to advanced
720 pages
17h 20m
English
Wiley
Content preview from Financial Management

26Risk, Uncertainty, and the Cost of Capital

THE TIME VALUE OF MONEY

The time value of money (TVOM) is an important financial concept. Essentially, the TVOM recognizes that a dollar today is worth more than an expectation of receiving a dollar in the future. Several factors contribute to this:

  • Inflation reduces the purchasing power in the future.
  • Uncertainty reduces the value of future cash or income payments (you may never get paid in full).
  • If you hold or invest a dollar, there is an “opportunity cost” (i.e., you are forgoing other opportunities to use that dollar). If you leave your savings in a bank savings account with very modest interest rates, you have passed on an opportunity to invest in a stock or bond with potentially higher returns. If a company invests in a project, it is passing on the opportunity of investing the capital in another project or financial security (or returning it to shareholders).

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Publisher Resources

ISBN: 9781394228362Purchase Link