The concept that I found interesting was time value of money.

I researched this topic and

found out that its used in capital budgeting t6echniques. Net present value (NPV) is an
investment appraisal technique which is used to help in taking project choosing decisions. The
prime idea on which net present value concept is based is that of time value of money. The net
worth of cash flows changes over time and due to this profitability/gain from a project also vary
accordingly. A positive NPV demonstrates that the project is desirable. Company also accept
project having 0 NPV because at 0 NPV the required return of company is equal to the return of
project (Kerzner, 2013). The strength of NPV is that it works well for independent and mutually
exclusive projects, takes all cash flows into account, and consider concept of time value of
money. However the weakness of NPV is that it gives a dollar figure rather than a percentage
figure, which people tend to at times confuse with the cost figure.
The internal rate of return (IRR) is an investment appraisal technique which gives a
relative rate of return to compare and measure profitability of projects. Its also known as
discounted cash flow rate of return (DCFROR). Internal rate of return is very effective in
decision making because it indicates the yield, quality and efficiency of a project. The point of
difference between NPV and IRR is that it indicates the magnitude and value of a project. The
point of decision is that IIR should be greater than cost of capital or minimum acceptable rate of
return (Cooper, Cornick, & Redmon, 2011). The strength of IRR is that it considers time value of
money, considers uncertainty of future cash flows, and assesses the value increment from the
project. The weakness of IRR is that it does not instigate a value maximizing decision.
Cooper, W. D., Cornick, M. F., & Redmon, A. (2011). Capital budgeting: A 1990 study of
Fortune 500 company practices. Journal of Applied Business Research (JABR), 8(3), 2023.
Kerzner, H. R. (2013). Project management: a systems approach to planning, scheduling, and
controlling. John Wiley & Sons.