Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

10. Time Value of Money

Time Value of Money Equations

Financial Accounting

10. Time Value of Money

Time Value of Money Equations

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Multiple Choice

Which of the following investment criteria takes the time value of money into consideration?

Payback Period

Return on Investment (ROI)

Accounting Rate of Return (ARR)

Net Present Value (NPV)

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Verified step by step guidance

Understand the concept of time value of money: The time value of money is the principle that a dollar today is worth more than a dollar in the future due to its potential earning capacity. This concept is crucial in evaluating investment decisions.

Review the investment criteria provided: Payback Period, Return on Investment (ROI), Accounting Rate of Return (ARR), and Net Present Value (NPV). Determine which of these methods incorporates the time value of money.

Analyze Payback Period: This method calculates the time required to recover the initial investment but does not account for the time value of money. It treats all cash flows equally, regardless of when they occur.

Evaluate ROI and ARR: Both Return on Investment (ROI) and Accounting Rate of Return (ARR) focus on profitability metrics but do not discount future cash flows to account for the time value of money.

Examine Net Present Value (NPV): NPV explicitly incorporates the time value of money by discounting future cash flows to their present value using a discount rate. This makes NPV the correct answer for investment criteria that consider the time value of money.