Though financial calculators and computers provide quick solution to time value related problems, structuring the problems plays important role. Though financial calculations are efficient, they may pose a danger in the sense that people may sometimes copy style without understanding the logical process that under the calculations. When confronted with new solutions/problem students may find it difficult to solve them. Hence, understanding/undergoing the basic problem and the concepts involved play an important role. The following procedure may be adopted in solving the time value related problem :
- Step I : Identify the two kinds as cash flows and their components.
- Step II : Illustrate each problem on the time line.
- Step III : Plot cash flow components on the time line
- Step IV : Select the base point of time to perform analysis.
- Step V : Draw arrows from each cash flow component to the base point of time.
- Step VI : Determine which of the cash flow components are to be used in present value and future value.
- Step VII : Find the total value of cash inflow and out flow components as of the base point of time and equate them to each other.
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