In this video, we will look into Investments and Cash Flows and Time Value of Money
We will introduce the basics for Time Value of Money (Present Value, Future Value) and the definition of financial parameters like Net Present Value (NPV), Internal Rate of Return (IRR) and other
0:45 – Time Value of Money – Introduction
2:45 – Overview of the Cash Flows over Time
3:30 – The initial investment
3:45 – Cash Flows over Time
4:30 – Value of Future Cash Flows – Present Value
5:50 – Conclusion
Investments and Cash Flows over time are at the basics of determining the financial efficiency of an investment or project. In order to evaluate the efficiency, it is important that project managers and many other people understand the principles of finance.
In this video, we start by introducing how the initial investment and the resulting cash flows are scheduled over time and we introduce the concept of the time value of money.
The initial investment is always a negative value and can be the project budget estimate at the planning stage or the final budget at completion. Once we have the initial investment completed, we expect cash flows over time that will generate profit.
Due to inflation, the value of cash diminishes over time and that is the main element in the time value of money. In order to evaluate the project, it is important to compare these cash flows with the initial investment.
The principles of Time Value of Money will be introduced over the next videos and typical formulas for the evaluation of investments like Pay Back Time (PBT), Return on Investment (ROI), Net Present Value (NPV), Internal Rate of Return (IRR) and Profitability Index (PI) will be defined.
Based on the introduction of the time value of money, we will introduce more finance-related terms like interest rates, compounding interest, present value and future value of money
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Introduction to time value of money
Financial parameters are very important when considering the financial viability of the project. Understand the principle of time value of money, and compounded interest and discover the main financial parameters that you can use to evaluate the financial performance of your projects like PBT, ROI, NPV, and IRR.
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