Time Value of Money: The Buy Versus Rent Decision
(2 pages of text)
Case (Gen Exp)
A recent MBA graduate had been renting a condominium, and a similar unit next door had just been listed for sale. Now facing the classic buy-versus-rent decision, the young grad decided it was time for her to apply some of the analytical tools she had acquired in business school — including “time value of money” concepts — to her personal life.
- To review and provide practical applications of several time-value-of-money concepts.
- To provide an understanding of how to estimate cash flows and why opportunity costs can be important.
- To introduce students (informally) to the net present value (NPV) framework.
- To illustrate the fact that most decisions can be evaluated quantitatively, using time-value-of-money concepts to supplement qualitative considerations.
This case can be used in a variety of contexts – including in a course on Corporate Finance, Financial Management or Real Estate or as an introductory case discussion in an undergraduate or MBA program – to help students to understand time-value-of-money concepts, as well as the practical applications of such concepts.
Finance and Insurance
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