TVM concepts are applicable to many types of problems. Some of those problems don't even have to be financial. Some example scenarios are provided below. See if you can determine how TVM would be used to solve the scenarios.
1. Mary buys a bottle of wine for $300. She expects that it will appreciate in value at a rate of 15% per year. What will the bottle of wine be worth in five years?
2. José is presented with a business opportunity. The opportunity would result in cash flows of $5,000 per year for each of the next 10 years. José is currently earning 12% per year on his other investments. What is the most José could pay for this opportunity and have it make sense?
3. David is bothered by the number of chipmunks living in his yard. There seem to be about 50 of them, and the population seems to be increasing by about 20% per year. If nothing changes, how many chipmunks will be in his yard in 10 years?
4. Rhonda wants to borrow some money to buy a car. She needs $25,000 and wants a five-year loan. The finance manager is offering a rate of 3% per year. What would her monthly payments be at this rate? What if she could negotiate the rate down to 2% per year? What if the finance manager asked her for 4% per year but, in return, would reduce the price of the car by $1,000?