Time Value Of Money Case Study

Finance managers, students, or anyone involved in the study of business and finance should have proper background and knowledge of the concepts of time value of money (TVM) in order to apply them correctly. Hence, the author of the abstract, Norman Gardner; suggest that these concepts be clarified and simplified in teaching in order for the students to understand these concepts better. Because these concepts are to be employed by financial managers in a competent manner, they should have a clear grasp of the concepts while still in school. There are a lot of suggestions such as using a number of step problems; discussing whether payment should be done “at the end” or “at the start” of each period; and thorough outlining of the “n” variable
They must be competent and comfortable in the use of these techniques since these are used extensively in the financial world. TVM techniques are commonly used in decisions involving capital structure and budgeting, analysis of leasing and buying of real estate properties, and suitable valuation of real and financial assets. Later on, these concepts are very crucial when making personal decisions like the purchase of a home, when making investments, buying bonds or stocks, and putting up or building real estate properties. Therefore it is necessary that TVM should be taught in school in such a way that students will not be left confused and uncertain on what concepts to apply to realistic problems. Textbooks should also be presented for easy understanding of the concepts where these can be applied to solve meaningful problems later
This concept comes from the fact that money is not stagnant but changes value over time. For example, you can buy more gasoline today that in the next year basing on the swelling gas or oil prices. Also, because of inflation, you will not enjoy the purchasing power of your money the same as it is today because the value of your money will likely decrease over time. These concepts must be properly inculcated in the mind of the student in order to properly employ these concepts when making TVM transactions. When investing in real estate, proper understanding of TVM is crucial. There is a need to measure as well as solve changes of the elements like net present value (NPV) and internal rate of return (IRR). Components such as future value and present value should be taken into consideration. Present value is explained as the worth of your money today while future value is the worth of your money in the coming years. It can also be stated as the purchasing power of your money. For example, you can purchase a 5M real estate property today but next year, you cannot buy it anymore at the same price. Why, because the purchasing power has decreased based on the high future value of the property. This is the reason why students must properly understand the relationship between future and present value of real estate investments. Meaning, because of time value of money,