ABSTRACT
According to economics, the value of a commodity is directly related to its scarcity relative to demand. The concept of the time value of money is based on the fact that most people would prefer to receive a given sum of money today than the same amount at some time in the future. If nothing else, receiving the money now potentially affords additional opportunities that may not be available later. Also, money held today is worth more than a promise of payment in the future because of the risk that the payment maynot be made in the future and because cash held today could be invested to earn a return in the future. Time value analysis has many applications, ranging from setting up schedules for paying off debt to decisions about whether to acquire new equipment. When an organization acquires a capital asset, it must either borrow the funds needed for the acquisition or use resources currently held by the organization. In the first case, the organization would be paying interest over the life of the loan. In the second case, the organization would be foregoing the return that it could have earned from using those resources in their next best alternative use.
