Final answer:
The fair value is determined by discounting the expected future cash flows or using market interest rates to calculate the present value. It represents the current worth of an investment or asset considering financing and time value of money.
Step-by-step explanation:
When using the time value of money with a significant financing component, the fair value is determined either by discounting the expected future cash flows or by using market interest rates to calculate the present value of those cash flows.
The fair value represents the current worth of an investment or asset, taking into account the financing arrangement and the time value of money.
This process takes into account both the time period over which the cash flows will occur and the discount rate, which reflects the risk and opportunity cost of the funds involved.