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What is the importance of cash flow timing in determining the present and the future value of an investment?
Wiki User
∙ 14y ago
Since the valuation of cash flows takes the amount of time to discount or compound into consideration, the timing of the cash flows plays an important role in determining both present and future value of those cash flows in an investment.
For example, a cash flow occurring one year from now will be discounted less than a cash flow taking place five years from now.
Similarly, you would rather receive $100 today as opposed to $100 five years from now since the money received today may receive compounding interest while you wait to receive the $100 five years from now.
Wiki User
∙ 14y ago
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