Financial Management: Principles and Applications, 13/e

5.1 Using Timelines to Visualize Cash Flows

To evaluate a new project, a financial manager must be able to compare benefits and costs that occur at different times. We will use the time-value-of-money tools we develop in this chapter to make the benefits and costs comparable, allowing us to make logical decisions. We begin our study of time value analysis by introducing some basic tools. As a first step, we can construct a timeline, a linear representation of the timing of cash flows. A timeline identifies the timing and amount of a stream of payments—both cash received and cash spent—along with the interest rate earned. Timelines are a critical first step that financial analysts use to solve financial problems, and we will refer to timelines ...