TEAM MEMBERS Sheshmani Upadhyay
Anit Kakkar
Nand Kishore Sharma

IMPORTANCE OF TIME VALUE OF MONEY :

IMPORTANCE OF TIME VALUE OF MONEY

What is Time Value Of Money ? :

What is Time Value Of Money ?

The amount of money received today, is worth more important than the same amount of money, received in future. :

The amount of money received today, is worth more important than the same amount of money, received in future.

FOR EXAMPLE :

FOR EXAMPLE Which would you prefer – Rs.10,000 today
OR
Rs.10,000 in 5 years?
Obviously, Rs. 10,000 TODAY

Why is TIME such an important elementin decision? :

Why is TIME such an important elementin decision? For present need
For Re-investment purpose
Future uncertainties

Methods of Time Value Adjustment :

Methods of Time Value Adjustment Compounding Technique :--
-- is used to find out the Future Value (FV) of a Present sum.
2. Discounting Technique :--
-- is used to find out the Present value of a Future sum.

1. Compounding Technique :

1. Compounding Technique 1. The Future Value (F.V) of a single present cash flow,
F.V = P.V (CVF)r,n
2. The F.V of a series/Annuity cash flow.
F.V = Annuity Amount*CVAF

WHICH TABLE TO SEE ? :

WHICH TABLE TO SEE ? Read the question carefully
2. If given, to find F.V/P.V :--
(i)For single sum for certain period of time then – simple F.V/P.V table
(ii) For series of sum/annuity amount then -- CVAF/PVAF table
****Rest depend upon the practice.****

1. The F.V of a single present cash flow, :

1. The F.V of a single present cash flow, Example :-
One has to find out the F.V
Given :-
P.V – Rs.10000
Rate – 5%
Time -- 10 years

Slide 13:

P.V = 10000
C.V.F= 1.629
Put in formula
F.V = P.V*C.V.F
10000*1.629
Ans = Rs.16290

2. The F.V of Annuity cash flow. :

2. The F.V of Annuity cash flow. ( F.V = Annuity Amount*CVAF )
ANNUITY :--)
A finite series of equal cash flow made at regular interval.
C.V.A.F -- Compound Value Annuity Factor

Slide 15:

Example:- ( F.V = Annuity Amount*CVAF )
Find F.V
**Suppose that a firm deposits Rs 5,000 at the end of
each year for 4 years at 6% rate of interest. How much would this annuity accumulate at the end of the fourth year?
Solution:-- We first find CVFA which is 4.3746.
If we multiply 4.375 by Rs 5,000, we obtain a compound value of Rs 21,875

2. Discounting Technique :

2. Discounting Technique 1. The Present Value (P.V) of a single present cash flow :--
P.V = F.V (PVF)r,n
2. The P.V of a series/Annuity cash flow :--
P.V = Annuity Amount*PVAF

Slide 17:

The Present Value (P.V) of a single present cash flow :-- P.V = F.V (PVF)r,n
**Example :-- What is the present value of Rs.10,000
received 5 years from now if your required rate of return is 12%.
Solution:--We first find PVF which is 0.567
If we multiply 0.567 to Rs 10,000, we obtain a compound value of Rs 5670

2. The P.V of Annuity cash flow. :

2. The P.V of Annuity cash flow. **If Unitech expects to receive Rs.5,00,000 for a period of 10 years from a new project it has just undertaken. Assuming 12% rate of interest. What will be the present value of this annuity.
Solution:--
The PVAF is 5.65
Multiply (5.65)PVAF with Rs.5,00,000
We get :-- Rs.2825000

conclusion :

conclusion The concept of time value of money can be applied to a particular amount ,or a series of amount i.e the Annuity amount.
It can be used to find out the rate of interest, or number of period of cash inflows/outflows.
Thus time value plays an important role in the consideration of any financial decision.

THANK YOU :

THANK YOU

ANY QUESTION :

ANY QUESTION

Slide 26:

Compounding is the process of finding the future values of cash flows by applying the concept of compound interest.

You do not have the permission to view this presentation. In order to view it, please
contact the author of the presentation.

Send to Blogs and Networks

Processing ....

Premium member

Use HTTPs

HTTPS (Hypertext Transfer Protocol Secure) is a protocol used by Web servers to transfer and display Web content securely. Most web browsers block content or generate a “mixed content” warning when users access web pages via HTTPS that contain embedded content loaded via HTTP. To prevent users from facing this, Use HTTPS option.

By: sultan12 (39 month(s) ago)

really good. please send it my mail sultanislam12@gmail.com..i'm very grateful to u