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Elaborate on the concept of compounding. Discuss how to calculate the Present Net Value and the significance of this indicator for decision-making.

The present cash flow value reflects todays terms; the value of future cash flows is adjusted for capital cost. The time value of money demonstrates that money in hand today is more valuable than an identical amount of money received in the future, and benefits and costs have a greater value if they are realized earlier. Since money today can earn interest, all costs must be adjusted to reflect the inflation rate and then discounted to reflect their Present Value. The time value of money reflects the idea that a dollar in hand today is worth more than a dollar in the future, even after adjusting for inflation.

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