Question

Explain the importance of time value of money to an individual and to a healthcare financial manager.

Answer 1

Time Value of money defines the worth of cash flows arising in future by considering the present investment of funds.

As per the concept money depreciates its value due to some factors like inflation. So we consider the time value of money as the cost of receiving money in the future rather than now will be greater to the loss in its real value due to inflation and also we can consider that the cost of funds receiving at present rather than later which can be effected by risk and uncertainty in its recovery by this we will determine the future cash flows and present cash flows.

They are some methods to calculate the time value of money like discounted value and cash budgeting method etc.,

For discounted value method we have to consider rate of interest, inflation, Risk premium.