Question

The concept of time value of money is important to financial decision making because?

1) It helps in determining the present value of future cash flows
2) It helps in calculating the future value of current investments
3) It helps in comparing investment options with different time horizons
4) All of the above

Answer 1

The concept of time value of money is critical as it helps in determining the present value of future cash flows, calculating the future value of current investments, and comparing investment options with various time horizons. Thus, all the listed reasons are accurate representations of why the time value of money concept is essential for financial decision-making.

Step-by-step explanation:

The concept of time value of money is important to financial decision-making because it serves several critical functions:

1. It helps in determining the present value of future cash flows.
2. It aids in calculating the future value of current investments.
3. It assists in comparing investment options with different time horizons.

Therefore, the correct answer is 4) All of the above. Understanding the time value of money allows investors and businesses to make informed decisions by considering how variables such as interest rates and opportunity costs impact the value of money over time. This ensures that they can maximize the efficiency of their investments and capital expenditures by taking into account both present and future value of money.