TIME VALUE OF

MONEY
OPPORTUNITY COST
FUTURE VALUE
PRESENT VALUE

DE GUZMAN & MURILLO

TIME VALUE OF
MONEY
The time value of money (TVM) is the
concept that a sum of money is
worth more now than the same sum
will be at a future date due to its
earnings potential in the interim. The
time value of money is a core
principle of finance.
TIME VALUE OF
MONEY
Time value of money is important
because it helps investors and
people saving for retirement
determine how to get the most out
of their dollars.
TIME VALUE OF
MONEY
The time value of money has a
negative relationship with inflation.
Remember that inflation is an increase
in the prices of goods and services. As
such, the value of a single dollar goes
down when prices rise, which means
you can't purchase as much as you
were able to in the past.
 OPPORTUNITY
COST
Opportunity cost is an economics
term that refers to the value of what
you have to give up in order to
choose something else. Opportunity
costs represent the potential benefits
that an individual, investor, or
business misses out on when
choosing one alternative over another.
OPPORTUNITY
COST
Examples of opportunity cost
include deciding not to upgrade
company equipment, or opting for
the most expensive product
packaging option over cheaper
options.
OPPORTUNITY
COST
Another example: A student
spends three hours and $20 at the
movies the night before an exam.
The opportunity cost is time spent
studying and that money to spend
on something else.
OPPORTUNITY
COST
FORMULA:
O=D–C
Where:
O – Opportunity cost
D – Return of Investment
opportunity not chosen
C – Return of Investment
opportunity chosen
 OPPORTUNITY
COST
Assume the expected Return On Investment (ROI) in
the stock market is 12% over the next year, and your
company expects the equipment update to generate
a 10% return over the same period.

FORMULA:
O=D-C
0 = 12% - 10%
0 = 2%
 OPPORTUNITY
COST
For example, if a car manufacturer could produce 10
cars worth $8,000 each or 5 trucks worth $12,000
each per day, the opportunity cost of choosing to
produce trucks instead of cars is $20,000, as
reflected through the opportunity cost formula:

FORMULA:
O=D-C
0 = $80,000 (10 CARS WORTH $8,000) -
$60,000 (5 TRUCKS WORTH $12,000)
0 = $20,000