What principle is demonstrated by the Time Value of Money?

The principle demonstrated by the Time Value of Money emphasizes that money available today is more valuable than the same amount of money in the future. This phenomenon occurs because money today can be invested to earn interest or returns, which means you have the potential to accumulate more wealth over time as opposed to waiting for a future cash inflow. Essentially, the ability to invest, earn returns, and utilize funds immediately greatly enhances the value of present money.

This principle relies on the idea that with the passage of time, money can grow through interest compounding or investment. Therefore, receiving $100 today allows for the opportunity to invest that amount, leading to the potential for greater future returns, while $100 received in the future does not provide that immediate growth potential. Thus, the Time Value of Money directly correlates to economic decision-making, investment strategies, and the valuation of cash flows at different points in time.