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 term refers to the current value of future cash flows discounted at the appropriate discount rate?

Future Value

Compound Interest

Present Value

Annuity Value

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Verified step by step guidance

Understand the concept of Present Value: Present Value (PV) refers to the current worth of a future sum of money or stream of cash flows, given a specified rate of return or discount rate. It accounts for the time value of money, which states that money today is worth more than the same amount in the future due to its earning potential.

Identify the formula for Present Value: The formula for calculating Present Value is \( PV = \frac{FV}{(1 + r)^n} \), where \( FV \) is the future value, \( r \) is the discount rate, and \( n \) is the number of periods.

Recognize the role of the discount rate: The discount rate is the rate of return used to discount future cash flows to their present value. It reflects the opportunity cost of capital and the risk associated with the cash flows.

Compare Present Value to other terms: Future Value refers to the value of an investment at a specific point in the future, Compound Interest involves earning interest on both the principal and previously earned interest, and Annuity Value pertains to the value of a series of equal payments made at regular intervals.

Apply the concept of Present Value to decision-making: Present Value is widely used in financial decision-making to evaluate investments, compare cash flows, and determine the value of financial instruments. It helps in assessing whether future cash flows justify the initial investment.