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 capital budgeting method takes into consideration the time value of money?

Payback Period

Net Present Value (NPV)

Average Cost Method

Accounting Rate of Return (ARR)

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Verified step by step guidance

Understand the concept of capital budgeting methods: Capital budgeting methods are techniques used to evaluate investment opportunities and decide whether they are worth pursuing. These methods help businesses allocate resources effectively.

Learn about the time value of money: The time value of money is a financial principle stating that money available today is worth more than the same amount in the future due to its earning potential. Methods that consider this principle are more accurate in evaluating investments.

Identify methods that do not consider the time value of money: The Payback Period and Accounting Rate of Return (ARR) methods do not account for the time value of money. They focus on simple calculations like the time to recover an investment or the accounting profit generated.

Understand the Net Present Value (NPV) method: NPV is a capital budgeting method that explicitly incorporates the time value of money. It calculates the present value of future cash flows by discounting them using a required rate of return and subtracts the initial investment.

Compare NPV to other methods: NPV is considered superior to methods like Payback Period and ARR because it provides a more accurate assessment of an investment's profitability by considering the timing and magnitude of cash flows.