Fm-Time Value of Money
Management Science-II
Prof. R.Madumathi
MODULE 2 Finance – An Introduction
The functions of finance in an organization is interlinked with other managerial responsibilities and in many instances, the finance manager could also done the role of a managing director. For the smooth functioning as well as to achieve excellence, organizations have to concentrate on the financial impact of a decision and its consequences. This also helps the organization to aim at a desired competency level against its competitors.
Basic Concept In Finance
• In organizations, flow of money occurs at various points of time. In order to evaluate the worth of money, the financial managers need to look at it from a common platform, namely one time duration. This common platform enables a meaningful comparison of money over different time periods.
•
An important principle in financial management is that the value of money depends on when the cash flow occurs – which implies Rs.100 now is worth more than Rs.100 at some future time.
Indian Institute of Technology Madras
Management Science-II
Prof. R.Madumathi
Time Value Of Money
Time Value Of Money
The Time-Value Of Money
Money like any other desirable commodity has a price. If you own money, you can, 'rent' it to someone else, say a banker, who can use it to earn income. This 'rent' is usually in the form of interest. The investor's return, which reflects the time-value of money, therefore indicates that there are investment opportunities available in the market. The return indicates that there is a – risk-free rate of return rewarding investors for forgoing immediate consumption – compensation for risk and loss of purchasing power.
Indian Institute of Technology Madras
Management Science-II
Prof. R.Madumathi
Time Value Of Money
• Risk: An amount of Rs.100 now is certain, whereas Rs.100 receivable next year is less certain. This 'uncertainty' principle affects many aspects of financial
Prof. R.Madumathi
MODULE 2 Finance – An Introduction
The functions of finance in an organization is interlinked with other managerial responsibilities and in many instances, the finance manager could also done the role of a managing director. For the smooth functioning as well as to achieve excellence, organizations have to concentrate on the financial impact of a decision and its consequences. This also helps the organization to aim at a desired competency level against its competitors.
Basic Concept In Finance
• In organizations, flow of money occurs at various points of time. In order to evaluate the worth of money, the financial managers need to look at it from a common platform, namely one time duration. This common platform enables a meaningful comparison of money over different time periods.
•
An important principle in financial management is that the value of money depends on when the cash flow occurs – which implies Rs.100 now is worth more than Rs.100 at some future time.
Indian Institute of Technology Madras
Management Science-II
Prof. R.Madumathi
Time Value Of Money
Time Value Of Money
The Time-Value Of Money
Money like any other desirable commodity has a price. If you own money, you can, 'rent' it to someone else, say a banker, who can use it to earn income. This 'rent' is usually in the form of interest. The investor's return, which reflects the time-value of money, therefore indicates that there are investment opportunities available in the market. The return indicates that there is a – risk-free rate of return rewarding investors for forgoing immediate consumption – compensation for risk and loss of purchasing power.
Indian Institute of Technology Madras
Management Science-II
Prof. R.Madumathi
Time Value Of Money
• Risk: An amount of Rs.100 now is certain, whereas Rs.100 receivable next year is less certain. This 'uncertainty' principle affects many aspects of financial