The Right Frame of Time

Abstract

AbstractThe most important concept in all of finance is the time value of money. As a discipline primarily concerned with defining and calculating values, obtaining consistent, time-relevant estimates is critical. All aspect of corporate finance requires understanding and incorporating the time value of money principles. In the preceding chapter, we made note of the fact that cash flows often occur at different times, and those of most concern are expected to occur at some future time. However, financial decisions are typically made in the current time frame. Thus, the values of those future cash flows need to be adjusted to reflect the differential time periods. This is not to say, however, there aren’t many instances where we want to know what a stream of cash flows will be worth at some point in the future as well. Therefore, we need to closely examine each of these options. There are three basic types of cash flows that comprise the study of time value of money: (1) single cash flows, (2) multiple unequal cash flows, and (3) multiple equal cash flows. We will address each of these, in turn, throughout this chapter.KeywordsInterest RateCash FlowFuture Cash FlowPresent ValueCompound InterestThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.