ABSTRACT
This chapter introduces the reader to the concept of the time value of money and how its applicability can affect decision-making in the airline industry. It shows how the interest rate can be used to calculate the present value of future streams of income or the future value of a present stream of income. The chapter discusses more complicated variations of these ideas such as annuities, perpetuities, and amortization schedules. Present value is also important as it puts future cash flows in present dollar terms. Ross defines the concept as the price or value put on time, so that the time value of money reflects the opportunity cost of investing at a risk-free rate. An annuity is defined as an equally distributed set of payments that occur over a predetermined amount of time. International Air Transport Association (IATA) defines an annuity as a series of payments of an equal amount at fixed intervals for a specified number of periods.
