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Time value of money fundamental in investment analysis

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Discounted cash flow analysis is also called time value of money analysis. It is the technique to covert a cash flow amount occurring at one time point into a cash flow amount occurring at another time point with the equivalent value. It is said that this technique is fundamentally important in any investment analysis, particularly in long-term investment analysis such as capital budgeting decisions. EXPLAIN why.

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The expert examines time value of money for fundamentals in investment analysis. A discount cash flow analysis is provided. The technique to convert a cash flow amount occurring at one time point into a cash flow amount occurring at another time point with the equivalent value.

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Discounting is the practice of expressing money in different values according to the period it occurs. The simple logic behind the practice is that money would never have the same intrinsic value over different time periods. This principle is clearly illustrated in the savings accounts offered by the banks. The banks provide an interest as incentive for depositors to set aside an ...

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  • B. Sc., University of Nigeria
  • M. Sc., London South Bank University
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