Which concept reflects the time value of money by allowing comparison of cash flows at different times?

The concept that reflects the time value of money by allowing comparison of cash flows at different times is net present value. This principle is crucial for understanding investment decisions as it accounts for the fact that money available today has a different purchasing power and potential to earn returns compared to money received in the future.

Net present value calculates the present value of expected future cash flows by discounting them back to the present using a specific rate, often the cost of capital or an expected rate of return. This allows for a straightforward comparison of cash inflows and outflows that occur at different points in time, making it a vital tool for investors and financial analysts. By providing a single number that aggregates all future cash flows into present terms, net present value helps in determining whether a project or investment will generate more value than it costs.

While future value and present value are also related to the time value of money, they serve different purposes: future value projects the amount of money an investment will grow to over time, while present value discounts future cash flows to arrive at their current worth. The internal rate of return evaluates the profitability of an investment based on the expected cash flows, but does not directly provide a comparative measure of cash flows at different times in the same manner as net