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 one of the following methods of analysis ignores the time value of money?

Net Present Value (NPV)

Internal Rate of Return (IRR)

Discounted Payback Period

Payback Period

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Verified step by step guidance

Understand the concept of the 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. Methods that account for this principle use discounting techniques to adjust future cash flows to their present value.

Review the Net Present Value (NPV) method: NPV calculates the present value of future cash inflows and outflows by discounting them using a specific rate. This method explicitly considers the time value of money.

Examine the Internal Rate of Return (IRR) method: IRR is the discount rate at which the net present value of cash flows equals zero. Since it involves discounting cash flows, it also accounts for the time value of money.

Analyze the Discounted Payback Period method: This method calculates the time required to recover the initial investment using discounted cash flows. It incorporates the time value of money by discounting future cash flows.

Understand the Payback Period method: Unlike the other methods, the Payback Period calculates the time required to recover the initial investment without discounting future cash flows. Therefore, it ignores the time value of money, making it the correct answer to the question.