Time Value of Money

Classmate wrote an exceptional post about the time value of money. In general, we have computations that do not use the time value of money and those calculations that use the time value of money. For instance, in week two, we reviewed the return on equity, earnings per share, Weighted-Average Cost of Capital, and Capital Asset Pricing Model. The return on equity, earnings per share, Weighted-Average Cost of Capital, and Capital Asset Pricing Model do not use the time value of money. In finance, the time value of money essential and critical for many reasons. For instance, because of inflation, we can not avoid the time value of money. When I was in the second grade, I began a small lawn care business. If I remember correctly, when I purchased gasoline for my lawnmower, I paid $0.20 for a gallon of gas. Yesterday, when I bought gas for my lawnmower, I paid $3.12 for a gallon of gas. Yes, supply and demand, as well as other factors, influenced the increases in gas prices. Also, inflation impacted the cost of fuel between 1971 and 2021. As Vani shared in the post, the net present value and internal rate of return consider the time value of money. Before reviewing the time value of money, we will go over the future and present value.

How is the information about the future value in Section 5.1 connected to what you already know about the future value?