Time value of money is a concept that the money you have today is worth more than future expectations. The present value of one item does not depend on the length of time, but also depends on the discounting factor which also can be called interest. There are two ways that can calculate the present value. One is single cash flow, it follows the formula of future value divided by the sum of one plus interest with power of the number of years. The other is multiple cash flows, it follows the formula: the total sum of cash flow for the year divided by one plus interest with power of years.

One good example using time value of money is the decision to buy fixed assets or not. As we all know that fixed assets like furniture, equipments have a certain time of use life. As they use for more years, the lower the net book value of fixed assets, this is why depreciation occurs. So it is necessary for a company to calculate the present value of the assets to see whether it is worth to buy. If the present value is larger than the profit can be earned after use life, then the company should buy.

(source is from class notes.)