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.

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