FIN201; Fundamentals of Corporate Finance

Assessment 1: Case Study

B.Com., III Semester, Fall 2020
(Submission Date: 07 OCT 2020 before 2300hrs) Total Marks: 10%
Time Value of Money: A home investment decision dilemma
(Varun Dawar, Arit Chaudhury & Rakesh Arrawatia)
LEARNING OBJECTIVES
The case illustrates practical usage of the time value of money concept and techniques to
quantitatively evaluate the classic decision of buying versus renting a home. After working
through the case and assignment question, students will be able to do the following:
 Understand the practical concepts and techniques of the time value of money.
 Understand the present and future value estimation framework.
 Estimate relevant cash flows, including equated monthly instalments, after taking into
account taxation and opportunity cost considerations.
 Perform quantitative evaluation, using the time value of money framework, for the
proposed alternatives of buying versus renting.

ASSIGNMENT QUESTIONS
1. Discuss the rationale and significance or the time value of money.
2. Using the time value of money framework, determine the equated monthly instalments
(EMI) in the case that Jain opts to buy the apartment.
3. Using the time value of money framework, determine the total monthly payments for the
proposed alternative to buy (taking into account opportunity costs and taxes)
4. Using the time value of money framework, determine the total monthly payments for the
proposed alternative to rent.
5. Determine the future capital gain/loss incurred after modelling the selling price of the
apartment, using a conservative 7 per cent annual appreciation in housing prices.
Determine the present value of such capital gain/loss after taking into account the time
value of money.
6. Based on your analysis, as Jain, would you decide to buy or to rent?

Case Study 2