Fin 370 – time value of money discussion
1. IRR/NPV models for capital budgeting: These models compare the potential returns of a project to its cost and allow businesses to determine if an investment is worth pursuing, given their risk profile and time horizon.
2. Discounted cash flow analysis: This method takes into account the time value of money by discounting future cash flows back to their present values in order to evaluate a project’s expected return on investment (ROI).
3. Cash budgeting and forecasting: A business can use this tool to assess how much it needs in terms of financial resources today as well as what kind of resources will be required over a certain period in the future due to changes in business activities or investments.