A rupee in hand today is more valuable than a rupee obtained in future. For example, let US compare receiving Rs.1000 today, and receiving it after 2 years. If today’s Rs.1000 is PLACED in a 2 year bank deposit earning simple interest of 8%, then it will be worth Rs.1080 (principal 1000 + interest 80) at the end of 2 years. This makes today’s Rs.1000 more valuable than the future Rs.1000. The value of currently available funds over funds received in the future is due to the return that can be earned by investing CURRENT funds. If cash flows that are receivable at different POINTS in TIME have to be compared, the time value of money has to be taken into account.

A rupee in hand today is more valuable than a rupee obtained in future. For example, let us compare receiving Rs.1000 today, and receiving it after 2 years. If today’s Rs.1000 is placed in a 2 year bank deposit earning simple interest of 8%, then it will be worth Rs.1080 (principal 1000 + interest 80) at the end of 2 years. This makes today’s Rs.1000 more valuable than the future Rs.1000. The value of currently available funds over funds received in the future is due to the return that can be earned by investing current funds. If cash flows that are receivable at different points in time have to be compared, the time value of money has to be taken into account.