Time Value of Money: Introduction A dollar in the hand today is worth on a dollar to be received in the future because if you had it now you could invest that dollar and interest. Of all the concepts used in finance, none is more important than the time value of money (TVM), also called a n analysis. Time value analysis has many applications, including retirement planning, stock and bond valuation, loan amortization, and capital budgeting analysis. Time value of money uses the concept of compound interest rather than simple interest Time Value of Money: Lump Sums Singe payments are known as lump sums. We can solve for the future value or the present value of a lump sum as we discuss below. Finding the future value (FV), or competing is the process of going from today's values to future amounts. The FV equation is: FV = PV(1+1) Here, PV - present value; I - Interest rate per year, and N-number of periods. You can use calculators and spreadsheets to find future values. A graph of the un process shows how any sum grows over time at various interest rates. The greater the interest rate, the www the growth rate Finding the present value (PV) is called discounting, and it is simply the reverse of computing B. In general, the present value of a cash flow due N years in the future is the amount which, if it were on hand today, would grow to equal the given future amount. The PV equation is: amount which, it were on hand today, would grow to the given future amount. The equations: Present value-PV- A graph of the discounting process shows how the present value of any sum to be received in the future decreases and approaches as the years to receipt increases, and the present value declines faster at the interest rates. The fundamental goal of financial management is to maximize the firm's value, and the value of any asset is the pre value of its expected future cash flows