Ajay Sharma’s Financial Planning Dilemmas
Synopsis
Time Value of Money (TMV) is a fundamental concept of Financial Management that must be well comprehended by all the business administration students. A rupee in the hand today, with all the other conditions being the same, is worth more than a rupee to be received in the future. This underlines the power of compounding. This caselet applies the concepts of TMV in the backdrop of Ajay Sharma’s dilemmas. This caselet can also be very effective in understanding and implementing the concepts of TMV by individuals as well as business entities while finalizing their financing decisions.
Prerequisite Conceptual Understanding
The students/participants should be encouraged to read the chapter on TMV for an effective classroom analysis:
- • Prasanna Chandra, " Chapter 8 - Time Value of Money,Fundamentals of Financial Management, 5th Edition, Tata McGraw-Hill Education Pvt. Ltd., 2010
Expected Learning Outcomes
At the end of this caselet, the participants are expected to have working knowledge of the following:
- • Mechanics of Compounding and Discounting
- • Application of Present Value and Future Value concepts in financial planning decisions
Positioning and Setting
This caselet can be used for highlighting the importance of TMV in any of the following modules/courses.
- • Financial Management course
- • Corporate Finance course
- • Valuation of Securities
Assignment Questions
- I. What’s the significance of Time Value of Money (TMV)? How does it make a difference to financial/investment decisions?
- II. How does the power of compounding help investors? How does it help dedicated investors to earn higher returns?
- III. In which option should Ajay invest the proceeds of insurance policy to maximize his returns?
- IV. How much will be the tuition and living expenses per year when Rohit goes for higher studies? Once Rohit starts college what will be his total expenses in each of his four years? How much money will have to be deposited by Ajay per month to allow Rohit to complete his education from a top-notch institution?
- V. ...................
Exhibits
Exhibit (TN)-I: Simple Interest vs Compound Interest
Exhibit (TN)-II: Future Value of a One-time Lump Sum Deposit of Rs. 5000
Exhibit (TN)-III: TMV Timelines