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Time Value of Money Application for the Asymmetric Distribution of Payments and Facts of Economic Life

Author

Listed:
  • Ilya Slobodnyak

    (Department of Economics and Digital Business Technology, Irkutsk National Research Technical University, 664074 Irkutsk, Russia)

  • Anatoly Sidorov

    (Department of Data Processing Automation, Tomsk State University of Control Systems and Radioelectronics, 634050 Tomsk, Russia)

Abstract

This article is devoted to the applied aspects of using the concept of the time value of money for the purpose of determining the present value of cash flows in conditions of asymmetric distribution of payments and facts of economic life over time. Currently, such situation is standard when doing business and should be thoroughly studied. The purpose of the study is to prove that the method of distribution of payments affects the result of discounting, and that this information is essential when making management decisions and should be disclosed to the user of the information. Based on the basic provisions of the theory of the time value of money and analyzing the specifics of the asymmetric distribution of the described events, the authors come to the conclusion that it is necessary to supplement the cost discounting methodology by including in it a description of the basic approaches to distribution. As such approaches, the use of distribution methods that were called First Payment First Sale (FPFS), First Payment Last Sale (FPLS), and Current Payment Current Sale (CPCS) are proposed. Use of these methods in certain calculations is the main novelty of this article. The difference that arises as a result of the use of different approaches to assessment in the conditions of asymmetric distribution is illustrated with the simulated data. Taking into account a specific approach to the distribution of cash flows leads to a better understanding of the basis for discounting indicators, improves the quality of information and the validity of management decisions based on it, and reduces the risks of choosing the wrong financing strategy.

Suggested Citation

  • Ilya Slobodnyak & Anatoly Sidorov, 2022. "Time Value of Money Application for the Asymmetric Distribution of Payments and Facts of Economic Life," JRFM, MDPI, vol. 15(12), pages 1-10, December.
    • Handle: RePEc:gam:jjrfmx:v:15:y:2022:i:12:p:573-:d:991493
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    References listed on IDEAS

    as
    1. Erdinc Akyildirim & Halil Mete Soner, 2014. "A brief history of mathematics in finance," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 14(1), pages 57-63, March.
    2. Hariga, Moncer A., 1995. "Effects of inflation and time-value of money on an inventory model with time-dependent demand rate and shortages," European Journal of Operational Research, Elsevier, vol. 81(3), pages 512-520, March.
    3. Gennady L. Brodetskiy, 2017. "The inventory optimisation taking into account time value of money and order payment deferrals," International Journal of Logistics Systems and Management, Inderscience Enterprises Ltd, vol. 28(4), pages 486-506.
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