First of all let us define what is time Value of Money

Time Value of Money is thought ,that money available at  the now or present is more important than it available after some duration . The idea behind this is that money can earn interest income.

Time value of money is important because of many understated reason

Discount Factor

discounting (present value)

Take eaxmple that you won the game win the lottery. and have options .

Option 1:

Take $5,000,000 at present

Option 2:

receive  $600,000 every year for the next 10 years.

It seems that, Option 2 may like the better bet because you get an extra $1,000,000, but TMV tells that amount received in future is  worth less and all these beause of Discount Factor

compounding (future value)

You may take second example

Suppose you went to the bank and invest $1000 and ABC Bank tells you  that if you  not withdraw  your money for the period of  5 years, then we will pay you interest at 5% a year. ears. At the end of 5 years,  you receive $1280 because of compounding factor

 
FV
Compounding Factor

1
1.05

2
1.10

3
1.16

4
1.22

5
1.28

Now you go to XYZ Bank and they will pay you 6% interest rate, so your money is actually worth 6% a year for every year

 
FV
Compounding Factor

1
1.06

2
1.12

3
1.19

4
1.26

5
1.34

So if you think for 5 years the ABC gives you  $1280 in 5 years and on the other hand XYZ  Bank  gives you  $1340. Between both  options, XYZ Bank is the better deal for maximizing future value.