Relevance of the Concept

The time value concept of money assumes importance because of the fact that future is always associated with uncertainty. A rupee in would today is valued higher than the one rupee that is expecting to be recovered tomorrow. The following are points that come in support of the fact that'the concept of time value of money is quite relevant in any area of decision making : 

1. The purchasing power of money over period of time goes down in real times. That means, though numerically the same, the purchasing power of one rupee today is considered to be high economically  its value as on a future date. 
2. Individuals prefer present consumption to future consumption. This is because of the risk and uncertainty associated with future. 
3. There is always related costs in any investment. These costs tend to bring down future value of money. 
4. In financial management, most of tl~e  problems involve cost-flows occurring at different points of time. For evaluation and comparison on an uniform basis. the concept of time value of money is used. 
5. The concept is also important for purpose of valuation of shares and firms.