time value of money case study with solution

7.3 Methods for Solving Time Value of Money Problems

Learning outcomes.

By the end of this section, you will be able to:

• Explain how future dollar amounts are calculated.
• Explain how present dollar amounts are calculated.
• Describe how discount rates are calculated.
• Describe how growth rates are calculated.
• Illustrate how periods of time for specified growth are calculated.
• Use a financial calculator and Excel to solve TVM problems.

We can determine future value by using any of four methods: (1) mathematical equations, (2) calculators with financial functions, (3) spreadsheets, and (4) FVIF tables. With the advent and wide acceptance and use of financial calculators and spreadsheet software, FVIF (and other such time value of money tables and factors) have become obsolete, and we will not discuss them in this text. Nevertheless, they are often still published in other finance textbooks and are also available on the internet to use if you so choose.

Using Timelines to Organize TVM Information

A useful tool for conceptualizing present value and future value problems is a timeline. A timeline is a visual, linear representation of periods and cash flows over a set amount of time. Each timeline shows today at the left and a desired ending, or future point (maturity date), at the right.

Now, let us take an example of a future value problem that has a time frame of five years. Before we begin to solve for any answers, it would be a good approach to lay out a timeline like that shown in Table 7.1 :

The timeline provides a visual reference for us and puts the problem into perspective.

Now, let’s say that we are interested in knowing what today’s balance of $100 in our saving account, earning 5% annually, will be worth at the end of each of the next five years. Using the future value formula

that we covered earlier, we would arrive at the following values: $105 at the end of year one, $110.25 at the end of year two, $115.76 at the end of year three, $121.55 at the end of year four, and $127.63 at the end of year five.

With the numerical information, the timeline (at a 5% interest or growth rate) would look like Table 7.2 :

Using timelines to lay out TVM problems becomes more and more valuable as problems become more complex. You should get into the habit of using a timeline to set up these problems prior to using the equation, a calculator, or a spreadsheet to help minimize input errors. Now we will move on to the different methods available that will help you solve specific TVM problems. These are the financial calculator and the Excel spreadsheet.

Using a Financial Calculator to Solve TVM Problems

An extremely popular method of solving TVM problems is through the use of a financial calculator. Financial calculators such as the Texas Instruments BAII Plus™ Professional will typically have five keys that represent the critical variables used in most common TVM problems: N , I/Y , PV , FV , and PMT . These represent the following:

These are the only keys on a financial calculator that are necessary to solve TVM problems involving a single payment or lump sum .

Example 1: Future Value of a Single Payment or Lump Sum

Let’s start with a simple example that will provide you with most of the skills needed to perform TVM functions involving a single lump sum payment with a financial calculator.

Suppose that you have $1,000 and that you deposit this in a savings account earning 3% annually for a period of four years. You will naturally be interested in knowing how much money you will have in your account at the end of this four-year time period (assuming you make no other deposits and withdraw no cash).

To answer this question, you will need to work with factors of $1,000, the present value ( PV ); four periods or years, represented by N ; and the 3% interest rate, or I/Y . Make sure that the calculator register information is cleared, or you may end up with numbers from previous uses that will interfere with the solution. The register-clearing process will depend on what type of calculator you are using, but for the TI BA II Plus™ Professional calculator, clearing can be accomplished by pressing the keys 2ND and FV [ CLR TVM ].

Once you have cleared any old data, you can enter the values in the appropriate key areas: 4 for N , 3 for I/Y , and 1000 for PV . Now you have entered enough information to calculate the future value. Continue by pressing the CPT (compute) key, followed by the FV key. The answer you end up with should be displayed as 1,125.51 (see Table 7.3 ).

Important Notes for Using a Calculator and the Cash Flow Sign Convention

Please note that the PV was entered as negative $1,000 (or -$1000). This is because most financial calculators (and spreadsheets) follow something called the cash flow sign convention, which is a way for calculators and spreadsheets to keep the relative direction of the cash flow straight. Positive numbers are used to represent cash inflows, and negative numbers should always be used for cash outflows.

In this example, the $1,000 is an investment that requires a cash outflow. For this reason, -1000 is entered as the present value, as you will be essentially handing this $1,000 to a bank or to someone else to initiate the transaction. Conversely, the future value represents a cash inflow in four years’ time. This is why the calculator generates a positive 1,125.51 as the end result of this calculation.

Had you entered the present value of $1,000 as a positive number, there would have been no real concern, but the ending future value answer would have been returned expressed as a negative number. This would be correct had you borrowed $1,000 today (cash inflow) and agreed to repay $1,125.51 (cash outflow) four years from now. Also, it is important that you do not change the sign of any input value by using the - (minus) key). For example, on the TI BA II Plus™ Professional, you must use the +|- key instead of the minus key. If you enter 1000 and then hit the +|- key, you will get a negative 1,000 amount showing in the calculator display.

An important feature of most financial calculators is that it is possible to change any of the variables in a problem without needing to reenter all of the other data. For example, suppose that we wanted to find out the future value in our bank account if we left the money from our previous example invested for 20 years instead of 4. Before clearing any of the data, simply enter 20 for N and then press the CPT key and then the FV key. After this is done, all other inputs will remain the same, and you will arrive at an answer of $1,806.11.

Think It Through

How to determine future value when other variables are known.

Here’s an example of using a financial calculator to solve a common time value of money problem. You have $2,000 invested in a money market account that is expected to earn 4% annually. What will be the total value in the account after five years?

Follow the recommended financial calculator steps in Table 7.4 .

The result of this future value calculation of the invested money is $2,433.31.

Example 2: Present Value of Lump Sums

Solving for the present value (discounted value) of a lump sum is the exact opposite of solving for a future value. Once again, if we enter a negative value for the FV, then the calculated PV will be a positive amount.

Taking the reverse of what we did in our example of future value above, we can enter -1,125.51 for FV , 3 for I/Y , and 4 for N . Hit the CPT and PV keys in succession, and you should arrive at a displayed answer of 1,000.

An important constant within the time value of money framework is that the present value will always be less than the future value unless the interest rate is negative. It is important to keep this in mind because it can help you spot incorrect answers that may arise from errors with your input.

How to Determine Present Value When Other Variables Are Known

Here is another example of using a financial calculator to solve a common time value of money problem. You have just won a second-prize lottery jackpot that will pay a single total lump sum of $50,000 five years from now. How much value would this have in today’s dollars, assuming a 5% interest rate?

Follow the recommended financial calculator steps in Table 7.5 .

The present value of the lottery jackpot is $39,176.31.

Example 3: Calculating the Number of Periods

There will be times when you will know both the value of the money you have now and how much money you will need to have at some unknown point in the future. If you also know the interest rate your money will be earning for the foreseeable future, then you can solve for N, or the exact amount of time periods that it will take for the present value of your money to grow into the future value that you will require for your eventual use.

Now, suppose that you have $100 today and you would like to know how long it will take for you to be able to purchase a product that costs $133.82.

After making sure your calculator is clear, you will enter 5 for I/Y , -100 for PV , and 133.82 for FV . Now press CPT N , and you will see that it will take 5.97 years for your money to grow to the desired amount of $133.82.

Again, an important thing to note when using a financial calculator to solve TVM problems is that you must enter your numbers according to the cash flow sign convention discussed above. If you do not make either the PV or the FV a negative number (with the other being a positive number), then you will end up getting an error message on the screen instead of the answer to the problem. The reason for this is that if both numbers you enter for the PV and FV are positive, the calculator will operate under the assumption that you are receiving a financial benefit without making any cash outlay as an initial investment. If you get such an error message in your calculations, you can simply press the CE/C key. This will clear the error, and you can reenter your data correctly by changing the sign of either PV or FV (but not both of these, of course).

Determining Periods of Time

Here is an additional example of using a financial calculator to solve a common time value of money problem. You want to be able to contribute $25,000 to your child’s first year of college tuition and related expenses. You currently have $15,000 in a tuition savings account that is earning 6% interest every year. How long will it take for this account grow into the targeted amount of $25,000, assuming no additional deposits or withdrawals will be made?

Table 7.6 shows the steps you will take.

The result of this calculation is a time period of 8.7667 years for the account to reach the targeted amount.

Example 4: Solving for the Interest Rate

Solving for an interest rate is a common TVM problem that can be easily addressed with a financial calculator. Let’s return to our earlier example, but in this case, we know that we have $1,000 at the present time and that we will need to have a total of $1,125.51 four years from now. Let’s also say that the only way we can add to the current value of our savings is through interest income. We will not be able to make any further deposits in addition to our initial $1,000 account balance.

What interest rate should we be sure to get on our savings account in order to have a total savings account value of $1,125.51 four years from now?

Once again, clear the calculator, and then enter 4 for N , -1,000 for PV , and 1,125.51 for FV . Then, press the CPT and I/Y keys and you will find that you need to earn an average 3% interest per year in order to grow your savings balance to the desired amount of $1,125.51. Again, if you end up with an error message, you probably failed to follow the sign convention relating to cash inflow and outflow that we discussed earlier. To correct this, you will need to clear the calculator and reenter the information correctly.

After you believe you are done and have arrived at a final answer, always make sure you give it a quick review. You can ask yourself questions such as “Does this make any sense?” “How does this compare to other answers I have arrived at?” or “Is this logical based on everything I know about the scenario?” Knowing how to go about such a review will require you to understand the concepts you are attempting to apply and what you are trying to make the calculator do. Further, it is critical to understand the relationships among the different inputs and variables of the problem. If you do not fully understand these relationships, you may end up with an incorrect answer. In the end, it is important to realize that any calculator is simply a tool. It will only do what you direct it to do and has no idea what your objective is or what it is that you really wish to accomplish.

Determining Interest or Growth Rate

Here is another example of using a financial calculator to solve a common time value of money problem. Let’s use a similar example to the one we used when calculating periods of time to determine an interest or growth rate. You still want to help your child with their first year of college tuition and related expenses. You also still have a starting amount of $15,000, but you have not yet decided on a savings plan to use.

Instead, the information you now have is that your child is just under 10 years old and will begin college at age 18. For simplicity’s sake, let’s say that you have eight and a half years before you will need to meet your total savings target of $25,000. What rate of interest will you need to grow your saved money from $15,000 to $25,000 in this time period, again with no other deposits or withdrawals?

Follow the steps shown in Table 7.7 .

The result of this calculation is a necessary interest rate of 6.194%.

Using Excel to Solve TVM Problems

Excel spreadsheets can be excellent tools to use when solving time value of money problems. There are dozens of financial functions available in Excel, but a student who can use a few of these functions can solve almost any TVM problem. Special functions that relate to TVM calculations are as follows:

Excel also includes a function called Payment (PMT) that is used in calculations involving multiple payments or deposits (annuities). These will be covered in Time Value of Money II: Equal Multiple Payments .

Future Value (FV)

The Future Value function in Excel is also referred to as FV and can be used to calculate the value of a single lump sum amount carried to any point in the future. The FV function syntax is similar to that of the other four basic time-value functions and has the following inputs (referred to as arguments), similar to the functions listed above:

Lump sum problems do not involve payments, so the value of Pmt in such calculations is 0. Another argument, Type, refers to the timing of a payment and carries a default value of the end of the period, which is the most common timing (as opposed to the beginning of a period). This may be ignored in our current example, which means the default value of the end of the period will be used.

The spreadsheet in Figure 7.3 shows two examples of using the FV function in Excel to calculate the future value of $100 in five years at 5% interest.

In cell E1, the FV function references the values in cells B1 through B4 for each of the arguments. When a user begins to type a function into a spreadsheet, Excel provides helpful information in the form of on-screen tips showing the argument inputs that are required to complete the function. In our spreadsheet example, as the FV formula is being typed into cell E2, a banner showing the arguments necessary to complete the function appears directly below, hovering over cell E3.

Cells E1 and E2 show how the FV function appears in the spreadsheet as it is typed in with the required arguments. Cell E4 shows the calculated answer for cell E1 after hitting the enter key. Once the enter key is pressed, the hint banner hovering over cell E3 will disappear. The second example of the FV function in our example spreadsheet is in cell E6. Here, the actual numerical values are used in the FV function equation rather than cell references. The method in cell E8 is referred to as hard coding . In general, it is preferable to use the cell reference method, as this allows for copying formulas and provides the user with increased flexibility in accounting for changes to input data. This ability to accept cell references in formulas is one of the greatest strengths of Excel as a spreadsheet tool.

Download the spreadsheet file containing key Chapter 7 Excel exhibits.

Determining Future Value When Other Variables Are Known . You have $2,000 invested in a money market account that is expected to earn 4% annually. What will be the total value in the account in five years?

Note: Be sure to follow the sign conventions. In this case, the PV should be entered as a negative value.

Note: In Excel, interest and growth rates must be entered as percentages, not as whole integers. So, 4 percent must be entered as 4% or 0.04—not 4, as you would enter in a financial calculator.

Note: It is always assumed that if not specifically stated, the compounding period of any given interest rate is annual, or based on years.

Note: The Excel command used to calculate future value is as follows:

You may simply type the values for the arguments in the above formula. Another option is to use the Excel insert function option. If you decide on this second method, below are several screenshots of dialog boxes you will encounter and will be required to complete.

This dialog box allows you to either search for a function or select a function that has been used recently. In this example, you can search for FV by typing this in the search box and selecting Go, or you can simply choose FV from the list of most recently used functions (as shown here with the highlighted FV option).

Figure 7.6 shows the completed data input for the variables, referred to here as “function arguments.” Note that cell addresses are used in this example. This allows the spreadsheet to still be useful if you decide to change any of the variables. You may also type values directly into the Function Arguments dialog box, but if you do this and you have to change any of your inputs later, you will have to reenter the new information. Using cell addresses is always a preferable method of entering the function argument data.

Additional notes:

• The Pmt argument or variable can be ignored in this instance, or you can enter a placeholder value of zero. This example shows a blank or ignored entry, but either option may be used in problems such as this where the information is not relevant.
• The Type argument does not apply to this problem. Type refers to the timing of cash flows and is usually used in multiple payment or annuity problems to indicate whether payments or deposits are made at the beginning of periods or at the end. In single lump sum problems, this is not relevant information, and the Type argument box is left empty.
• When you use cell addresses as function argument inputs, the numerical values within the cells are displayed off to the right. This helps you ensure that you are identifying the correct cells in your function. The final answer generated by the function is also displayed for your preliminary review.

Once you are satisfied with the result, hit the OK button, and the dialog box will disappear, with only the final numerical result appearing in the cell where you have set up the function.

The FV of this present value has been calculated as approximately $2,433.31.

Present Value (PV)

We have covered the idea that present value is the opposite of future value. As an example, in the spreadsheet shown in Figure 7.3 , we calculated that the future value of $100 five years from now at a 5% interest rate would be $127.63. By reversing this process, we can safely state that $127.63 received five years from now with a 5% interest (or discount) rate would have a value of just $100 today. Thus, $100 is its present value. In Excel, the PV function is used to determine present value (see Figure 7.7 ).

The formula in cell E1 uses cell references in a similar fashion to our FV example spreadsheet above. Also similar to our earlier example is the hard-coded formula for this calculation, which is shown in cell E6. In both cases, the answers we arrive at using the PV function are identical, but once again, using cell references is preferred over hard coding if possible.

Determining Present Value When Other Variables Are Known

You have just won a second-prize lottery jackpot that will pay a single total lump sum of $50,000 five years from now. You are interested in knowing how much value this would have in today’s dollars, assuming a 5% interest rate.

• If you wish for the present value amount to be positive, the future value you enter here should be a negative value.
• In Excel, interest and growth rates must be entered as percentages, not as whole integers. So, 5 percent must be entered as 5% or 0.05—not 5, as you would enter in a financial calculator.
• It is always assumed that if not specifically stated, the compounding period of any given interest rate is annual, or based on years.
• The Excel command used to calculate present value is as shown here:

As with the FV formula covered in the first tab of this workbook, you may simply type the values for the arguments in the above formula. Another option is to again use the Insert Function option in Excel. Figure 7.8 , Figure 7.9 , and Figure 7.10 provide several screenshots that demonstrate the steps you’ll need to follow if you decide to enter the PV function from the Insert Function menu.

As discussed in the FV function example above, this dialog box allows you to either search for a function or select a function that has been used recently. In this example, you can search for PV by typing this into the search box and selecting Go, or you can simply choose PV from the list of the most recently used functions.

Figure 7.10 shows the completed data input for the function arguments. Note that once again, cell addresses are used in this example. This allows the spreadsheet to still be useful if you decide to change any of the variables. As in the FV function example, you may also type values directly in the Function Arguments dialog box, but if you do this and you have to change any of your input later, you will have to reenter the new information. Remember that using cell addresses is always a preferable method of entering the function argument data.

Again, similar to our FV function example, the Function Arguments dialog box shows values off to the right of the data entry area, including our final answer. The Pmt and Type boxes are again not relevant to this single lump sum example, for reasons we covered in the FV example.

Review your answer. Once you are satisfied with the result, click the OK button, and the dialog box will disappear, with only the final numerical result appearing in the cell where you have set up the function. The PV of this future value has been calculated as approximately $39,176.31.

Periods of Time

The following discussion will show you how to use Excel to determine the amount of time a given present value will need to grow into a specified future value when the interest or growth rate is known.

You want to be able to contribute $25,000 to your child’s first year of college tuition and related expenses. You currently have $15,000 in a tuition savings account that is earning 6% interest every year. How long will it take for this account grow into the targeted amount of $25,000, assuming no additional deposits or withdrawals are made?

• As with our other examples, interest and growth rates must be entered as percentages, not as whole integers. So, 6 percent must be entered as 6% or 0.06—not 6, as you would enter in a financial calculator.
• The present value needs to be entered as a negative value in accordance with the sign convention covered earlier.
• The Excel command used to calculate the amount of time, or number of periods, is this:

As with our FV and PV examples, you may simply type the values of the arguments in the above formula, or we can again use the Insert Function option in Excel. If you do so, you will need to work with the various dialog boxes after you select Insert Function.

As discussed in our previous examples on FV and PV, this menu allows you to either search for a function or select a function that has been used recently. In this example, you can search for NPER by typing this into the search box and selecting Go, or you can simply choose NPER from the list of most recently used functions.

• Once you have highlighted NPER, click the OK button, and a new dialog box will appear for you to enter the necessary details. As in our previous examples, it will look like Figure 7.12 .

Figure 7.13 shows the completed Function Arguments dialog box. Note that once again, we are using cell addresses in this example.

As in the previous function examples, values are shown off to the right of the data input area, and our final answer of approximately 8.77 is displayed at the bottom. Also, once again, the Pmt and Type boxes are not relevant to this single lump sum example.

Review your answer, and once you are satisfied with the result, click the OK button. The dialog box will disappear, with only the final numerical result appearing in the cell where you have set up the function.

The amount of time required for the desired growth to occur is calculated as approximately 8.77 years.

Interest or Growth Rate

You can also use Excel to determine the required growth rate when the present value, future value, and total number of required periods are known.

Let’s discuss a similar example to the one we used to calculate periods of time. You still want to help your child with their first year of college tuition and related expenses, and you still have a starting amount of $15,000, but you have not yet decided which savings plan to use.

Instead, the information you now have is that your child is just under 10 years old and will begin college at age 18. For simplicity’s sake, let’s say that you have eight and a half years until you will need to meet your total savings target of $25,000. What rate of interest will you need to grow your saved money from $15,000 to $25,000 in this time, again with no other deposits or withdrawals?

Note: The present value needs to be entered as a negative value.

Note: The Excel command used to calculate interest or growth rate is as follows:

As with our other TVM function examples, you may simply type the values for the arguments into the above formula. We also again have the same alternative to use the Insert Function option in Excel. If you choose this option, you will again see the Insert Function dialog box after you click the Insert Function button.

Once we complete the input, again using cell addresses for the required argument values, we will see what is shown in Figure 7.16 .

As in our other examples, cell values are shown as numerical values off to the right, and our answer of approximately 0.0619, or 6.19%, is shown at the bottom of the dialog box.

This answer also can be checked from a logic point of view because of the similar example we worked through when calculating periods of time. Our present value and future value are the same as in that example, and our time period is now 8.5 years, which is just under the result we arrived at (8.77 years) in the periods example.

So, if we are now working with a slightly shorter time frame for the savings to grow from $15,000 into $25,000, then we would expect to have a slightly greater growth rate. That is exactly how the answer turns out, as the calculated required interest rate of approximately 6.19% is just slightly greater than the growth rate of 6% used in the previous example. So, based on this, it looks like our answer here passes a simple “sanity check” review.

• 1 The specific financial calculator in these examples is the Texas Instruments BA II Plus™ Professional model, but you can use other financial calculators for these types of calculations.

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Time value of money: a home investment decision dilemma description.

In early 2016, Naresh Jain was busy looking at various rental properties on popular real estate listing websites. Because of a sudden downturn in business conditions and an immediate need for money, Jain's landlord wanted to sell the property and therefore had asked Jain to vacate the premises within 30 days. Jain had been living in the spacious, two-bedroom apartment in North West Delhi for the past five years as it was within a reasonable commuting distance to his workplace. After looking at various rental properties, Jain had come across a furnished apartment identical to his, next door, and met with a broker to discuss it. During the discussion, it came up that an identical apartment in an adjoining locality was for sale at a??12.5 million. Jain was thus faced with a quantitative finance decision of buy versus rent to arrive at the right option for him given his current financial conditions and the potential future benefits. The authors Arit Chaudhury and Varun Dawar are affiliated with Institute of Management Technology, Ghaziabad.

Case Description Time Value of Money: A Home Investment Decision Dilemma

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Time Value of Money: A Home Investment Decision Dilemma is a Harvard Business (HBR) Case Study on Finance & Accounting , Texas Business School provides HBR case study assignment help for just $9. Texas Business School(TBS) case study solution is based on HBR Case Study Method framework, TBS expertise & global insights. Time Value of Money: A Home Investment Decision Dilemma is designed and drafted in a manner to allow the HBR case study reader to analyze a real-world problem by putting reader into the position of the decision maker. Time Value of Money: A Home Investment Decision Dilemma case study will help professionals, MBA, EMBA, and leaders to develop a broad and clear understanding of casecategory challenges. Time Value of Money: A Home Investment Decision Dilemma will also provide insight into areas such as – wordlist , strategy, leadership, sales and marketing, and negotiations.

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The Time Value of Money: A Home Investment Decision Dilemma case study solution requires the MBA, EMBA, executive, professional to have a deep understanding of various strategic management tools such as SWOT Analysis, PESTEL Analysis / PEST Analysis / STEP Analysis, Porter Five Forces Analysis, Go To Market Strategy, BCG Matrix Analysis, Porter Value Chain Analysis, Ansoff Matrix Analysis, VRIO / VRIN and Marketing Mix Analysis.

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In the Texas Business School, Time Value of Money: A Home Investment Decision Dilemma case study solution – following strategic tools are used - SWOT Analysis, PESTEL Analysis / PEST Analysis / STEP Analysis, Porter Five Forces Analysis, Go To Market Strategy, BCG Matrix Analysis, Porter Value Chain Analysis, Ansoff Matrix Analysis, VRIO / VRIN and Marketing Mix Analysis. We have additionally used the concept of supply chain management and leadership framework to build a comprehensive case study solution for the case – Time Value of Money: A Home Investment Decision Dilemma

Step 1 – Problem Identification of Time Value of Money: A Home Investment Decision Dilemma - Harvard Business School Case Study

The first step to solve HBR Time Value of Money: A Home Investment Decision Dilemma case study solution is to identify the problem present in the case. The problem statement of the case is provided in the beginning of the case where the protagonist is contemplating various options in the face of numerous challenges that Jain Apartment is facing right now. Even though the problem statement is essentially – “Finance & Accounting” challenge but it has impacted by others factors such as communication in the organization, uncertainty in the external environment, leadership in Jain Apartment, style of leadership and organization structure, marketing and sales, organizational behavior, strategy, internal politics, stakeholders priorities and more.

Step 2 – External Environment Analysis

Texas Business School approach of case study analysis – Conclusion, Reasons, Evidences - provides a framework to analyze every HBR case study. It requires conducting robust external environmental analysis to decipher evidences for the reasons presented in the Time Value of Money: A Home Investment Decision Dilemma. The external environment analysis of Time Value of Money: A Home Investment Decision Dilemma will ensure that we are keeping a tab on the macro-environment factors that are directly and indirectly impacting the business of the firm.

What is PESTEL Analysis? Briefly Explained

PESTEL stands for political, economic, social, technological, environmental and legal factors that impact the external environment of firm in Time Value of Money: A Home Investment Decision Dilemma case study. PESTEL analysis of " Time Value of Money: A Home Investment Decision Dilemma" can help us understand why the organization is performing badly, what are the factors in the external environment that are impacting the performance of the organization, and how the organization can either manage or mitigate the impact of these external factors.

How to do PESTEL / PEST / STEP Analysis? What are the components of PESTEL Analysis?

As mentioned above PESTEL Analysis has six elements – political, economic, social, technological, environmental, and legal. All the six elements are explained in context with Time Value of Money: A Home Investment Decision Dilemma macro-environment and how it impacts the businesses of the firm.

How to do PESTEL Analysis for Time Value of Money: A Home Investment Decision Dilemma

To do comprehensive PESTEL analysis of case study – Time Value of Money: A Home Investment Decision Dilemma , we have researched numerous components under the six factors of PESTEL analysis.

Political Factors that Impact Time Value of Money: A Home Investment Decision Dilemma

Political factors impact seven key decision making areas – economic environment, socio-cultural environment, rate of innovation & investment in research & development, environmental laws, legal requirements, and acceptance of new technologies.

Government policies have significant impact on the business environment of any country. The firm in “ Time Value of Money: A Home Investment Decision Dilemma ” needs to navigate these policy decisions to create either an edge for itself or reduce the negative impact of the policy as far as possible.

Data safety laws – The countries in which Jain Apartment is operating, firms are required to store customer data within the premises of the country. Jain Apartment needs to restructure its IT policies to accommodate these changes. In the EU countries, firms are required to make special provision for privacy issues and other laws.

Competition Regulations – Numerous countries have strong competition laws both regarding the monopoly conditions and day to day fair business practices. Time Value of Money: A Home Investment Decision Dilemma has numerous instances where the competition regulations aspects can be scrutinized.

Import restrictions on products – Before entering the new market, Jain Apartment in case study Time Value of Money: A Home Investment Decision Dilemma" should look into the import restrictions that may be present in the prospective market.

Export restrictions on products – Apart from direct product export restrictions in field of technology and agriculture, a number of countries also have capital controls. Jain Apartment in case study “ Time Value of Money: A Home Investment Decision Dilemma ” should look into these export restrictions policies.

Foreign Direct Investment Policies – Government policies favors local companies over international policies, Jain Apartment in case study “ Time Value of Money: A Home Investment Decision Dilemma ” should understand in minute details regarding the Foreign Direct Investment policies of the prospective market.

Corporate Taxes – The rate of taxes is often used by governments to lure foreign direct investments or increase domestic investment in a certain sector. Corporate taxation can be divided into two categories – taxes on profits and taxes on operations. Taxes on profits number is important for companies that already have a sustainable business model, while taxes on operations is far more significant for companies that are looking to set up new plants or operations.

Tariffs – Chekout how much tariffs the firm needs to pay in the “ Time Value of Money: A Home Investment Decision Dilemma ” case study. The level of tariffs will determine the viability of the business model that the firm is contemplating. If the tariffs are high then it will be extremely difficult to compete with the local competitors. But if the tariffs are between 5-10% then Jain Apartment can compete against other competitors.

Research and Development Subsidies and Policies – Governments often provide tax breaks and other incentives for companies to innovate in various sectors of priority. Managers at Time Value of Money: A Home Investment Decision Dilemma case study have to assess whether their business can benefit from such government assistance and subsidies.

Consumer protection – Different countries have different consumer protection laws. Managers need to clarify not only the consumer protection laws in advance but also legal implications if the firm fails to meet any of them.

Political System and Its Implications – Different political systems have different approach to free market and entrepreneurship. Managers need to assess these factors even before entering the market.

Freedom of Press is critical for fair trade and transparency. Countries where freedom of press is not prevalent there are high chances of both political and commercial corruption.

Corruption level – Jain Apartment needs to assess the level of corruptions both at the official level and at the market level, even before entering a new market. To tackle the menace of corruption – a firm should have a clear SOP that provides managers at each level what to do when they encounter instances of either systematic corruption or bureaucrats looking to take bribes from the firm.

Independence of judiciary – It is critical for fair business practices. If a country doesn’t have independent judiciary then there is no point entry into such a country for business.

Government attitude towards trade unions – Different political systems and government have different attitude towards trade unions and collective bargaining. The firm needs to assess – its comfort dealing with the unions and regulations regarding unions in a given market or industry. If both are on the same page then it makes sense to enter, otherwise it doesn’t.

Economic Factors that Impact Time Value of Money: A Home Investment Decision Dilemma

Social factors that impact time value of money: a home investment decision dilemma, technological factors that impact time value of money: a home investment decision dilemma, environmental factors that impact time value of money: a home investment decision dilemma, legal factors that impact time value of money: a home investment decision dilemma, step 3 – industry specific analysis, what is porter five forces analysis, step 4 – swot analysis / internal environment analysis, step 5 – porter value chain / vrio / vrin analysis, step 6 – evaluating alternatives & recommendations, step 7 – basis for recommendations, references :: time value of money: a home investment decision dilemma case study solution.

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Time Value of Money: The Buy Versus Rent Decision – Case Solution

In this "Time Value of Money: The Buy Versus Rent Decision" case study, a recent MBA graduate had been renting an apartment while a similar flat had been listed for sale. The graduate is now facing the typical buy versus rent decision. Hence the grad decided to apply some of her analytical tools acquired in business school to make this decision for her personal life.

​Sean Cleary, Stephen R. Foerster Ivey ( W14403-PDF-ENG ) August 28, 2014

Case questions answered:

Case study questions answered in the first solution:

• What is the best solution to take — to rent or to buy?
• What are the assumptions you use?

Case study questions answered in the second solution:

• Calculate the best route for the graduate’s housing situation, developing your understanding of the time value of money (TVM) concepts and calculations.
• Describe your assumptions, methodology, and results in your discussion narrative, and attach a simple spreadsheet supporting your analysis.

Not the questions you were looking for? Submit your own questions & get answers .

Time Value of Money: The Buy Versus Rent Decision Case Answers

This case solution includes an Excel file with calculations.

You will receive access to two case study solutions! The second is not yet visible in the preview.

BACKGROUND – Time Value of Money: The Buy Versus Rent Decision Case Study

The case is about Rebecca Young, who just completed her MBA and moved to Toronto for her new job in the banking industry. She is having a dilemma between renting or buying a condo instead.

A condo unit is an identical unit next door to her rented unit. She has been renting for more than a year, and she really thinks she can afford the monthly amortization, knowing that she has a secured job in the next 5-10 years.

Let us list the facts of the case:

Her monthly rent is $3,000, and this does not include utilities and cable television, but parking is included in the monthly rent.

The purchase price of the unit is $620,000, but Rebecca thinks she can get it for $600,000. 20% of the purchase price is needed for a downpayment. This will also include both a local and provincial deed-transfer tax of 1.5% of the purchase price – this is both payable and due on the purchase date. A closing fee is estimated to be around $2,000. The total cash outlay on the purchase date totals $140,000, broken as follows:

Rebecca requested to model the amount of the outstanding principal at various points in the future, two, five, and ten years from now, and this was presented to her.

There were also scenario cases that she considered in her analysis before making her final decision. These scenario cases are presented below and are described accordingly:

• The condo price remains unchanged.
• The condo price drops 10% over the next two years, then increases back to its purchase price by the end of five years, and then increases by a total of 10% from the original price by the end of ten years.
• The condo price increases annually by the annual rate of inflation of 2% per year over the next ten years
• The condo price increases annually by an annual rate of 5% per year over the next 1ten years.

These scenario cases are properly illustrated and calculated using the Excel platform.

PRESENTATION:

Case 1 is presented to Ms. Young as saying that she is renting the condo and intelligently pursuing to invest the cash outlay of $140,000. The future value of this investment at year 2 is…

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• What Is Time Value of Money?
• Understanding TVM

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Time Value of Money Explained with Formula and Examples

Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.

What Is the Time Value of Money (TVM)?

The time value of money (TVM) is the concept that a sum of money is worth more now than the same sum will be at a future date due to its earnings potential in the interim. The time value of money is a core principle of finance. A sum of money in the hand has greater value than the same sum to be paid in the future. The time value of money is also referred to as the present discounted value.

Key Takeaways

• The time value of money means that a sum of money is worth more now than the same sum of money in the future.
• The principle of the time value of money means that it can grow only through investing so a delayed investment is a lost opportunity.
• The formula for computing the time value of money considers the amount of money, its future value, the amount it can earn, and the time frame.
• For savings accounts, the number of compounding periods is an important determinant as well.
• Inflation has a negative impact on the time value of money because your purchasing power decreases as prices rise.

Investopedia / Mira Norian

Understanding the Time Value of Money (TVM)

Investors prefer to receive money today rather than receive the same amount in the future. Any sum of money, once invested, grows over time . So, that money they receive and invest today is worth more than putting off the receipt until tomorrow. For example, money deposited into a savings account earns interest. Over time, the interest is added to the principal, earning more interest. That's the power of compounding interest. 

If it is not invested, the value of the money erodes over time. If you hide $1,000 in a mattress for three years, you will lose the additional money it could have earned over that time if invested. It will have even less buying power when you retrieve it because inflation reduces its value .

As another example, say you have the option of receiving $10,000 now or $10,000 two years from now. Despite the equal face value, $10,000 today has more value and utility than it will two years from now due to the opportunity costs associated with the delay. In other words, a delayed payment is a missed opportunity.

The time value of money has a negative relationship with inflation . Remember that inflation is an increase in the prices of goods and services. As such, the value of a single dollar goes down when prices rise, which means you can't purchase as much as you were able to in the past.

Time Value of Money Formula

The most fundamental formula for the time value of money takes into account the following: the future value of money, the present value of money, the interest rate, the number of compounding periods per year, and the number of years.

Based on these variables, the formula for TVM is:

F V = P V ( 1 + i n ) n × t where: F V = Future value of money P V = Present value of money i = Interest rate n = Number of compounding periods per year t = Number of years \begin{aligned}&FV = PV \Big ( 1 + \frac {i}{n} \Big ) ^ {n \times t} \\&\textbf{where:} \\&FV = \text{Future value of money} \\&PV = \text{Present value of money} \\&i = \text{Interest rate} \\&n = \text{Number of compounding periods per year} \\&t = \text{Number of years}\end{aligned} ​ F V = P V ( 1 + n i ​ ) n × t where: F V = Future value of money P V = Present value of money i = Interest rate n = Number of compounding periods per year t = Number of years ​

Keep in mind, though that the TVM formula may change slightly depending on the situation. For example, in the case of annuity or perpetuity payments, the generalized formula has additional or fewer factors.

The time value of money doesn't take into account any capital losses that you may incur or any negative interest rates that may apply. In these cases, you may be able to use negative growth rates to calculate the time value of money

Examples of Time Value of Money

Here's a hypothetical example to show how the time value of money works. Let's assume a sum of $10,000 is invested for one year at 10% interest compounded annually. The future value of that money is:

F V = $ 10 , 000 × ( 1 + 10 % 1 ) 1 × 1 = $ 11 , 000 \begin{aligned}FV &= \$10,000 \times \Big ( 1 + \frac{10\%}{1} \Big ) ^ {1 \times 1} \\ &= \$11,000 \\\end{aligned} F V ​ = $10 , 000 × ( 1 + 1 10% ​ ) 1 × 1 = $11 , 000 ​

The formula can also be rearranged to find the value of the future sum in present-day dollars. For example, the present-day dollar amount compounded annually at 7% interest that would be worth $5,000 one year from today is:

P V = [ $ 5 , 000 ( 1 + 7 % 1 ) ] 1 × 1 = $ 4 , 673 \begin{aligned}PV &= \Big [ \frac{ \$5,000 }{ \big (1 + \frac {7\%}{1} \big ) } \Big ] ^ {1 \times 1} \\&= \$4,673 \\\end{aligned} P V ​ = [ ( 1 + 1 7% ​ ) $5 , 000 ​ ] 1 × 1 = $4 , 673 ​

Effect of Compounding Periods on Future Value

The number of compounding periods has a dramatic effect on the TVM calculations. Taking the $10,000 example above, if the number of compounding periods is increased to quarterly, monthly, or daily, the ending future value calculations are:

• Quarterly Compounding: F V = $ 10 , 000 × ( 1 + 10 % 4 ) 4 × 1 = $ 11 , 038 FV = \$10,000 \times \Big ( 1 + \frac { 10\% }{ 4 } \Big ) ^ {4 \times 1} = \$11,038 F V = $10 , 000 × ( 1 + 4 10% ​ ) 4 × 1 = $11 , 038
• Monthly Compounding: F V = $ 10 , 000 × ( 1 + 10 % 12 ) 12 × 1 = $ 11 , 047 FV = \$10,000 \times \Big ( 1 + \frac { 10\% }{ 12 } \Big ) ^ {12 \times 1} = \$11,047 F V = $10 , 000 × ( 1 + 12 10% ​ ) 12 × 1 = $11 , 047
• Daily Compounding: F V = $ 10 , 000 × ( 1 + 10 % 365 ) 365 × 1 = $ 11 , 052 FV = \$10,000 \times \Big ( 1 + \frac { 10\% }{ 365 } \Big ) ^ {365 \times 1} = \$11,052 F V = $10 , 000 × ( 1 + 365 10% ​ ) 365 × 1 = $11 , 052

This shows that the TVM depends not only on the interest rate and time horizon but also on how many times the compounding calculations are computed each year.

How Does the Time Value of Money Relate to Opportunity Cost?

Opportunity cost is key to the concept of the time value of money. Money can grow only if it is invested over time and earns a positive return. Money that is not invested loses value over time. Therefore, a sum of money that is expected to be paid in the future, no matter how confidently it is expected, is losing value in the meantime.

Why Is the Time Value of Money Important?

The concept of the time value of money can help guide investment decisions. For instance, suppose an investor can choose between two projects: Project A and Project B. They are identical except that Project A promises a $1 million cash payout in year one, whereas Project B offers a $1 million cash payout in year five. The payouts are not equal. The $1 million payout received after one year has a higher present value than the $1 million payout after five years.

How Is the Time Value of Money Used in Finance?

It would be hard to find a single area of finance where the time value of money does not influence the decision-making process. The time value of money is the central concept in discounted cash flow (DCF) analysis, which is one of the most popular and influential methods for valuing investment opportunities. It is also an integral part of financial planning and risk management activities. Pension fund managers, for instance, consider the time value of money to ensure that their account holders will receive adequate funds in retirement.

What Impact Does Inflation Have on the Time Value of Money?

The value of money changes over time and there are several factors that can affect it. Inflation, which is the general rise in prices of goods and services, has a negative impact on the future value of money. That's because when prices rise, your money only goes so far. Even a slight increase in prices means that your purchasing power drops. So that dollar you earned in 2015 and kept in your piggy bank buys less today than it would have back then.

How Do You Calculate the Time Value of Money?

The time value of money takes several things into account when calculating the future value of money, including the present value of money (PV), the number of compounding periods per year (n), the total number of years (t), and the interest rate (i). You can use the following formula to calculate the time value of money: FV = PV x [1 + (i / n)]  (n x t) .

The future value of money isn't the same as present-day dollars. And the same is true about money from the past. This phenomenon is known as the time value of money. Businesses can use it to gauge the potential for future projects. And as an investor, you can use it to pinpoint investment opportunities. Put simply, knowing what TVM is and how to calculate it can help you make sound decisions about how you spend, save, and invest.

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Time Value of Money (TVM): A Primer

• 16 Jun 2022

Would you rather receive $1,000 today or the promise that you’ll receive it one year from now? At first glance, this may seem like a trick question; in both instances, you receive the same amount of money.

Yet, if you answered the former, you made the correct choice. Why does receiving $1,000 now provide more value than in the future?

This concept is called the time value of money (TVM), and it’s central to financial accounting and business decision-making. Here’s a primer on what TVM is, how to calculate it, and why it matters.

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What Is the Time Value of Money?

The time value of money (TVM) is a core financial principle that states a sum of money is worth more now than in the future.

In the online course Financial Accounting , Harvard Business School Professor V.G. Narayanan presents three reasons why this is true:

• Opportunity cost: Money you have today can be invested and accrue interest, increasing its value.
• Inflation: Your money may buy less in the future than it does today.
• Uncertainty: Something could happen to the money before you’re scheduled to receive it. Until you have it, it’s not a given.

Essentially, a sum of money’s value depends on how long you must wait to use it; the sooner you can use it, the more valuable it is.

When time is the only differentiating factor, the money you receive sooner will always be more valuable. Yet, sometimes, there are other factors at play. For instance, what’s more valuable: $1,000 today or $2,000 one year from now?

TVM calculations “translate” all future cash to its present value. This way, you can directly compare its values and make financially informed decisions.

“Cash flows expressed in different time periods are analogous to cash flows expressed in different currencies,” Narayanan says in Financial Accounting. “To add or subtract cash flows of different currencies, we first have to convert them to the same currency. Likewise, cash flows of different time periods can be added and subtracted only if we convert them first into the same period.”

Related: 8 Financial Accounting Skills for Business Success

How to Calculate TVM

How you calculate TVM depends on which value you have and which you want to solve for. If you know the money’s present value (for instance, the amount you deposited into your savings account today), you can use the following formula to find its future value after accruing interest:

FV = PV x [ 1 + (i / n) ] (n x t)

Alternatively, if you know the money’s future value (for instance, a sum that’s expected three years from now), you can use the following version of the formula to solve for its present value:

PV = FV / [ 1 + (i / n) ] (n x t)

In the TVM formula:

• FV = cash’s future value
• PV = cash’s present value
• i = interest rate (when calculating future value) or discount rate (when calculating present value)
• n = number of compounding periods per year
• t = number of years

Calculating TVM Manually: An Example

Imagine you’re a key decision-maker in your organization and two projects are proposed:

• Project A is predicted to bring in $2 million in one year.
• Project B is predicted to bring in $2 million in two years.

Before running the calculation, you know that the time value of money states the $2 million brought in by Project A is worth more than the $2 million brought in by Project B, simply because Project A’s earnings are predicted to happen sooner.

To prove it, here’s the calculation to compare the present value of both projects’ predicted earnings, using an assumed four percent discount rate:

PV = 2,000,000 / [ 1 + (.04 / 1) ] (1 x 1)

PV = 2,000,000 / [ 1 + .04 ] 1

PV = 2,000,000 / 1.04

PV = $1,923,076.92

PV = 2,000,000 / [ 1 + (.04 / 1) ] (1 x 2)

PV = 2,000,000 / [ 1 + .04 ] 2

PV = 2,000,000 / 1.04 2

PV = 2,000,000 / 1.0816

PV = $1,849,112.43

In this example, the present value of Project A’s returns is greater than Project B’s because Project A’s will be received one year sooner. In that year, you could invest the $2 million in other revenue-generating activities, put it into a savings account to accrue interest, or pay expenses without risk.

Now, imagine there’s a third project to consider: Project C, which is predicted to bring in $3 million in two years. This adds another variable into the mix: When sums of money aren’t the same, how much weight does timeliness carry?

PV = 3,000,000 / [ 1 + (.04 / 1) ] (1 x 2)

PV = 3,000,000 / [ 1 + .04 ] 2

PV = 3,000,000 / 1.04 2

PV = 3,000,000 / 1.0816

PV = $2,773,668.64

In this case, Project C’s present value is greater than Project A’s, despite Project C having a longer timeline. In this case, you’d be wise to choose Project C.

Calculating TVM in Excel

While the aforementioned example was calculated manually, you can use a formula in Microsoft Excel, Google Sheets, or other data processing software to calculate TVM. Use the following formula to calculate a future sum’s present value:

=PV(rate,nper,pmt,FV,type)

In this formula:

• Rate refers to the interest rate or discount rate for the period. This is “i” in the manual formula.
• Nper refers to the number of payment periods for a given cash flow. This is “t” in the manual formula.
• Pmt or FV refers to the payment or cash flow to be discounted. This is “FV” in the manual formula. You don’t need to include values for both pmt and FV.
• Type refers to when the payment is received. If it’s received at the beginning of the period, use 0. If it’s received at the end of the period, use 1.

It’s important to note that this formula assumes payments are equal over the total number of periods (nper).

Here’s the calculation for Project A’s present value using Excel:

Why Is TVM Important?

Even if you don’t need to use the TVM formula in your daily work, understanding it can help guide decisions about which projects or initiatives to pursue.

“Applying the concept of time value of money to projections of free cash flows provides us with a way of determining what the value of a specific project or business really is,” Narayanan says in Financial Accounting.

As in the previous examples, you can use the TVM formula to calculate predicted returns’ present values for multiple projects. Those present values can then be compared to determine which will provide the most value to your organization.

Additionally, investors use TVM to assess businesses’ present values based on projected future returns, which helps them decide which investment opportunities to prioritize and pursue. If you’re an entrepreneur seeking venture capital funding, keep this in mind. The quicker you provide returns to investors, the higher cash’s present value, and the higher the likelihood they’ll choose to invest in your company over others.

You now know the basics of TVM and can use it to make financially informed decisions. If this piqued your interest, consider taking an online course like Financial Accounting to build your skills and learn more about TVM and other financial levers that impact an organization’s financial health .

Do you want to take your career to the next level? Explore Financial Accounting —one of three online courses comprising our Credential of Readiness (CORe) program —which can teach you the key financial topics you need to understand business performance and potential. Not sure which course is right for you? Download our free flowchart .

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Time Value of Money versus Rent Harvard Case Solution & Analysis

Home >> Harvard Case Study Analysis Solutions >> Time Value of Money versus Rent

Time Value of Money versus Rent Case Study Solution

The case illustrates the deadlock for Rebecca, who has joined the investment bank after accomplishing her MBA degree to either buy a new condominium or should continue to live in her old condominium for $3000 a month. Since she is well aware of the concept of Time value of money, Rebecca determine to find the trade-offs and opportunity cost in acquiring the condominium through mortgage loan with 20% payment of interest or continuing to pay $3000 a month for her old condominium.

Keywords :  Buy, Rent, Mortgage, loan

Time Value of Money versus Rent

Problem Statement

In the given scenario, should Rebecca buy the new condominium through mortgage or should she continue to pay rent. Both the decisions has to be made through determination of time value of money.

Opportunity cost and payment

If Rebecca pursues to purchase the condominium, it would require her to pay the amount around $124,000 exclusive of taxes and other operational costs associated with transactions.However, if the same amount is invested in some other activity like bonds or something like that, it would give her the return of $406 monthly. But the option would require her to put down the interest of purchasing a new condominium.

Also, it is also analyzed that acquiring a new Condominium would incur the additional cost in future due to certain change in policies or political scenario of the country that might affect the interest and taxes rates. In such condition, Rebecca ha so pay an enormous amount of $ 1811, including condo Fees, Property taxes, Repair, opportunity cost and Maintenance.

Mortgage Acquisition

If Rebecca chooses to purchase the condominium at the cost of $ 600,000, at the rate of 4% annually. This will open a gateway for Rebecca to acquire the mortgage and buy the new condominium with the payment for next 25 years.Also, if Rebecca chooses to acquire the mortgage loan, it will incur her additional cost of $2533 monthly. Moreover, she also have to pay the down payment of 20% along with the Principal amount of $ 120,000.lastly, she also has to pay the closing fees property tax and monthly taxes, which will combine and make the amount of $1400 monthly.

Situational Analysis

There are four scenarios presented to Rebecca’s under certain conditions. (1) If the price of condominium remains unchanged than Rebecca will not incur any gain or loss however, if the price of the condominium increase by 10%, than Rebecca will gain $60000 with the market inflation rate of 2% for net 10 years that will offer a gross gain of $ 131397.But if the prices raise by 5% than she will get the gross profit of $377,366 as a return.

The case represents multiple options available to Rebecca for utilizing her money according to time value of money. If Rebecca opts for purchasing the condominium, it will require her to pay the down payment, along with closing fees. However, if she continues to live in the rented condominium,she requires to pay the $ 3000 monthly only. But of se go to opt for option 1, which is acquiring the mortgage loan, she would have to pay the amount of $ 4345 including all taxes and additional cost, which is higher amount than the one she is paying in the form of rent.

But it is also important to analyze that rent is also a form of liability that will not transfer the ownership to Rebecca name, and it will not give her anything in had t the day end. Which will give rise to the concept of time value of money. Though acquiring the mortgage loan will require Rebeca to pay an additional amount, but at the day end, the will get the ownership of the condominium, which is the effective utilization of money. Though acquiring loan and rent are both liability, but one labiality offers the ownership at the day end which is termed as limited liability. Also, if she invests in any other activity, it will give her the return of $ 406 that will only offset the inflation cost for her in return n future, thus not offering any ample amount of opportunity to Rebecca.

However, acquiring the loan would not be easy in terms of payment since one payment requires her to pay a high amount inclusive of principal payment and transaction fees. But it is an opportunity, since there are chances that the price ofland will increase in future, and that of the financial position of Rebecca in next 10 years, that will ease up the payments nada so offer a valuable asset in return.

Time value of Money versus Rent Decision Harvard Case Solution & Analysis

Recommendation and Conclusion

The option of acquiring the mortgage loan is best for Rebecca, as it will offer her the ownership of the land at the day end in the next 25 years. Though the option is costlier in present time, yet it will offer her great returns in future. Since rent is an unlimited liability, so even if Rebecca lives for 50 years in the rented house, it will not offer her anything in return, making the money go is vain. Also, if she invests in other investment activities, the return will not trade off with the future results of acquiring an ownership of land.And since it is also depicted that the price of land will appreciate, it is right time for Rebecca to acquire the mortgage and the ownership of land in next 25 years............................

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Diversity wins: How inclusion matters

Diversity wins is the third report in a McKinsey series investigating the business case for diversity, following Why diversity matters (2015) and Delivering through diversity (2018). Our latest report shows not only that the business case remains robust but also that the relationship between diversity on executive teams and the likelihood of financial outperformance has strengthened over time. These findings emerge from our largest data set so far, encompassing 15 countries and more than 1,000 large companies. By incorporating a “social listening” analysis of employee sentiment in online reviews, the report also provides new insights into how inclusion matters. It shows that companies should pay much greater attention to inclusion, even when they are relatively diverse.

In the COVID-19 crisis, inclusion and diversity matter more than ever

For business executives the world over, the COVID-19 pandemic  is proving to be one of the greatest leadership tests of their careers. Not only must they protect the health of their employees and customers, they must also navigate far-reaching disruption to their operations, plan for recovery, and prepare to reimagine their business models for the next normal.

In this challenging context, the task of fostering inclusion and diversity (I&D) could easily take a back seat—and the painstaking progress made by many firms in recent years could be reversed. As this report shows, however, I&D is a powerful enabler of business performance. Companies whose leaders welcome diverse talents and include multiple perspectives are likely to emerge from the crisis stronger. As the CEO of a European consumer-goods company told us: “I know we have to deal with COVID-19, but inclusion and diversity is a topic too important to put onto the back burner.”

On the other hand, some companies appear to be viewing I&D as a “luxury we cannot afford” during the crisis. We believe such companies risk tarnishing their license to operate in the long term and will lose out on opportunities to innovate their business models and strengthen their recovery.

If companies deprioritize I&D during the crisis, the impact will be felt not just on the bottom line but in people’s lives. Research and experience warn that diverse talent can be at risk during a downturn for several reasons—for example, downsizing can have a disproportionate impact on the roles typically held by diverse talent. As companies send staff home to work, this could reinforce existing exclusive behaviors and unconscious biases and undermine inclusion. In addition, inequality with regard to sharing childcare and homeschooling responsibilities, as well as the quality of home workspace (including broadband access), could put women and minorities at a disadvantage during this time of working remotely.

Companies need to seize this moment—both to protect the gains they have already made and to leverage I&D to position themselves to prosper in the future.

There is ample evidence that diverse and inclusive companies are more likely to make better, bolder decisions—a critical capability in the crisis. For example, diverse teams have been shown to be better able to radically innovate and anticipate shifts in consumer needs and consumption patterns. Moreover, the shift to technology-enabled remote working presents an opportunity for companies to accelerate building inclusive and agile cultures—further challenging existing management routines. Not least, a visible commitment to I&D during the crisis is likely to strengthen companies’ global image and license to operate.

By following the trajectories of hundreds of companies in our data set since 2014, we find that the overall slow growth in diversity often observed in fact masks a growing polarization among these organizations. While most have made little progress, are stalled or even slipping backward, some are making impressive gains in diversity, particularly in executive teams. We show that these diversity winners are adopting systematic, business-led approaches to inclusion and diversity (I&D) . And, with a special focus on inclusion, we highlight the areas where companies should take far bolder action to create a long-lasting inclusive culture and to promote inclusive behavior.

(Our research predates the outbreak of the global pandemic, but we believe these findings remain highly relevant. See the sidebar, “In the COVID-19 crisis, inclusion and diversity matter more than ever,” for more on why I&D must remain a priority even as the context shifts, or read “ Diversity still matters ” for an even deeper dive. You can also explore a related interactive  for another lens on the issues.)

A stronger business case for diversity, but slow progress overall

Our latest analysis reaffirms the strong business case for both gender diversity and ethnic and cultural diversity in corporate leadership—and shows that this business case continues to strengthen. The most diverse companies are now more likely than ever to outperform less diverse peers on profitability.

Our 2019 analysis finds that companies in the top quartile for gender diversity on executive teams were 25 percent more likely to have above-average profitability than companies in the fourth quartile—up from 21 percent in 2017 and 15 percent in 2014 (Exhibit 1).

Moreover, we found that the greater the representation, the higher the likelihood of outperformance. Companies with more than 30 percent women executives were more likely to outperform companies where this percentage ranged from 10 to 30, and in turn these companies were more likely to outperform those with even fewer women executives, or none at all. A substantial differential likelihood of outperformance—48 percent—separates the most from the least gender-diverse companies.

In the case of ethnic and cultural diversity, our business-case findings are equally compelling: in 2019, top-quartile companies outperformed those in the fourth one by 36 percent in profitability, slightly up from 33 percent in 2017 and 35 percent in 2014. As we have previously found, the likelihood of outperformance continues to be higher for diversity in ethnicity than for gender.

A McKinsey Live event on 'Creating an inclusive environment for transgender employees'

A McKinsey Live event on 'Women in the Workplace 2021: The state of women hangs in the balance'

Yet progress, overall, has been slow. In the companies in our original 2014 data set, based in the United States and the United Kingdom, female representation on executive teams rose from 15 percent in 2014 to 20 percent in 2019. Across our global data set, for which our data starts in 2017, gender diversity moved up just one percentage point—to 15 percent, from 14—in 2019. More than a third of the companies in our data set still have no women at all on their executive teams. This lack of material progress is evident across all industries and in most countries. Similarly, the representation of ethnic-minorities on UK and US executive teams stood at only 13 percent in 2019, up from just 7 percent in 2014. For our global data set, this proportion was 14 percent in 2019, up from 12 percent in 2017 (Exhibit 2).

The widening gap between winners and laggards

While overall progress on gender and cultural representation has been slow, this is not consistent across all organizations. Our research clearly shows that there is a widening gap between I&D leaders and companies that have yet to embrace diversity. A third of the companies we analyzed have achieved real gains in top-team diversity over the five-year period. But most have made little or no progress, and some have even gone backward.

This growing polarization between high and low performers is reflected in an increased likelihood of a performance penalty. In 2019, fourth-quartile companies for gender diversity on executive teams were 19 percent more likely than companies in the other three quartiles to underperform on profitability—up from 15 percent in 2017 and 9 percent in 2015. At companies in the fourth quartile for both gender and ethnic diversity, the penalty was even steeper in 2019: they were 27 percent more likely to underperform on profitability than all other companies in our data set.

Learn more about delivering through diversity

We sought to understand how companies in our original 2014 data set have been progressing, and in doing so we identified five cohorts. These were based on their starting points and speed of progress on executive team gender representation and, separately, ethnic-minority representation (Exhibit 3). In the first two cohorts, Diversity Leaders and Fast Movers, diverse representation improved strongly over the past five years: for example, gender Fast Movers have almost quadrupled the representation of women on executive teams, to 27 percent, in 2019; for ethnicity, companies in the equivalent cohort have increased their level of diversity from just 1 percent in 2014 to 18 percent in 2019.

At the other end of the spectrum, the already poor diversity performance of the Laggards has declined further. In 2019, an average of 8 percent of executive team members at these companies were female—and they had no ethnic-minority representation at all. The two other cohorts are Moderate Movers, which have on average experienced a slower improvement in diversity, and Resting on Laurels, which started with higher levels of diversity than Laggards did, but have similarly become less diverse since 2014.

We also found that the average likelihood of financial outperformance in these cohorts is consistent with our findings in the quartile analysis above. For example, in 2019, companies in the Resting on Laurels cohort on average had the highest likelihood of outperformance on profitability, at almost 62 percent—likely reflecting their historically high levels of diversity on executive teams. Laggards, on the other hand, are more likely to underperform their national industry median in profitability, at 40 percent.

How inclusion matters

By analyzing surveys and company research, we explored how different approaches to I&D could have shaped the trajectories of the companies in our data set. Our work suggested two critical factors: a systematic business-led approach to I&D, and bold action on inclusion. On the former we have previously advocated for an I&D approach based on a robust business case tailored to the needs of individual companies, evidenced-based targets, and core-business leadership accountability.

To further understand how inclusion matters—and which aspects of it employees regard as significant—we conducted our first analysis of inclusion-related indicators. We conducted this outside-in using “social listening,” focusing on sentiment in employee reviews of their employers posted on US-based online platforms.

While this approach is indicative, rather than conclusive, it could provide a more candid read on inclusion than internal employee-satisfaction surveys do—and makes it possible to analyze data across dozens of companies rapidly and simultaneously. We focused on three industries with the highest levels of executive-team diversity in our data set: financial services , technology , and healthcare . In these sectors, comments directly pertaining to I&D accounted for around one-third of total comments made, suggesting that this topic is high on employees’ minds.

We analyzed comments relating to five indicators. The first two—diverse representation and leadership accountability for I&D—are evidence of a systematic approach to I&D. The other three—equality, openness, and belonging—are core components of inclusion. For several of these indicators, our findings suggest “pain points” in the experience of employees:

• While overall sentiment on diversity was 52 percent positive and 31 percent negative, sentiment on inclusion was markedly worse, at only 29 percent positive and 61 percent negative. This encapsulates the challenge that even the more diverse companies still face in tackling inclusion (Exhibit 4). Hiring diverse talent isn’t enough—it’s the workplace experience that shapes whether people remain and thrive.
• Opinions about leadership and accountability in I&D accounted for the highest number of mentions and were strongly negative. On average, across industries, 51 percent of the total mentions related to leadership, and 56 percent of those were negative. This finding underscores the increasingly recognized need for companies to improve their I&D engagement with core-business managers.
• For the three indicators of inclusion—equality, openness, and belonging—we found particularly high levels of negative sentiment about equality and fairness of opportunity. Negative sentiment about equality ranged from 63 to 80 percent across the industries analyzed. The work environment’s openness, which encompasses bias and discrimination, was also a significant concern—negative sentiment across industries ranged from 38 to 56 percent. Belonging elicited overall positive sentiment, but from a relatively small number of mentions.

These findings highlight the importance not just of inclusion overall but also of specific aspects of inclusion. Even relatively diverse companies face significant challenges in creating work environments characterized by inclusive leadership and accountability among managers, equality and fairness of opportunity, and openness and freedom from bias and discrimination.

Winning through inclusion and diversity: Taking bold action

We took a close look at our data set’s more diverse companies, which as we have seen are more likely to outperform financially. The common thread for these diversity leaders is a systematic approach and bold steps to strengthen inclusion. Drawing on best practices from these companies, this report highlights five areas of action (Exhibit 5):

• Ensure the representation of diverse talent. This is still an essential driver of inclusion. Companies should focus on advancing diverse talent into executive, management, technical, and board roles. They should ensure that a robust I&D business case designed for individual companies is well accepted and think seriously about which forms of multivariate diversity to prioritize (for example, going beyond gender and ethnicity). They also need to set the right data-driven targets for the representation of diverse talent.
• Strengthen leadership accountability and capabilities for I&D. Companies should place their core-business leaders and managers at the heart of the I&D effort—beyond the HR function or employee resource-group leaders. In addition, they should not only strengthen the inclusive-leadership capabilities of their managers and executives but also more emphatically hold all leaders to account for progress on I&D.
• Enable equality of opportunity through fairness and transparency. To advance toward a true meritocracy, it is critical that companies ensure a level playing field in advancement and opportunity. They should deploy analytics tools to show that promotions, pay processes, and the criteria behind them, are transparent and fair; debias these processes ; and strive to meet diversity targets in their long-term workforce plans.
• Promote openness and tackle microaggressions. Companies should uphold a zero-tolerance policy for discriminatory behavior, such as bullying and harassment, and actively help managers and staff to identify and address microaggressions. They should also establish norms for open, welcoming behavior and ask leaders and employees to assess each other on how they are living up to that standard.
• Foster belonging through unequivocal support for multivariate diversity. Companies should build a culture where all employees feel they can bring their whole selves to work. Managers should communicate and visibly embrace their commitment to multivariate forms of diversity, building a connection to a wide range of people and supporting employee resource groups to foster a sense of community and belonging. Companies should explicitly assess belonging in internal surveys.

For deeper insights, download Diversity wins: How inclusion matters , the full report on which this article is based (PDF–10.6MB).

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Vitamin D is a nutrient your body needs for building and maintaining healthy bones. That's because your body can only absorb calcium, the primary component of bone, when vitamin D is present. Vitamin D also regulates many other cellular functions in your body. Its anti-inflammatory, antioxidant and neuroprotective properties support immune health, muscle function and brain cell activity.

Vitamin D isn't naturally found in many foods, but you can get it from fortified milk, fortified cereal, and fatty fish such as salmon, mackerel and sardines. Your body also makes vitamin D when direct sunlight converts a chemical in your skin into an active form of the vitamin (calciferol).

The amount of vitamin D your skin makes depends on many factors, including the time of day, season, latitude and your skin pigmentation. Depending on where you live and your lifestyle, vitamin D production might decrease or be completely absent during the winter months. Sunscreen, while important to prevent skin cancer, also can decrease vitamin D production.

Many older adults don't get regular exposure to sunlight and have trouble absorbing vitamin D. If your doctor suspects you're not getting enough vitamin D, a simple blood test can check the levels of this vitamin in your blood.

Taking a multivitamin with vitamin D may help improve bone health. The recommended daily amount of vitamin D is 400 international units (IU) for children up to age 12 months, 600 IU for people ages 1 to 70 years, and 800 IU for people over 70 years.

What the research says

Research on vitamin D use for specific conditions shows:

• Cancer. Findings on the benefits of vitamin D for cancer prevention are mixed. More studies are needed to determine whether vitamin D supplementation may reduce the risk of certain cancers.
• Cognitive health. Research shows that low levels of vitamin D in the blood are associated with cognitive decline. However, more studies are needed to determine the benefits of vitamin D supplementation for cognitive health.
• Inherited bone disorders. Vitamin D supplements can be used to help treat inherited disorders resulting from an inability to absorb or process vitamin D, such as familial hypophosphatemia.
• Multiple sclerosis. Research suggests that long-term vitamin D supplementation reduces the risk of multiple sclerosis.
• Osteomalacia. Vitamin D supplements are used to treat adults with severe vitamin D deficiency, resulting in loss of bone mineral content, bone pain, muscle weakness and soft bones (osteomalacia).
• Osteoporosis. Studies suggest that people who get enough vitamin D and calcium in their diets can slow bone mineral loss, help prevent osteoporosis and reduce bone fractures. Ask your doctor if you need a calcium and vitamin D supplement to prevent or treat osteoporosis.
• Psoriasis. Applying vitamin D or a topical preparation that contains a vitamin D compound called calcipotriene to the skin can treat plaque-type psoriasis in some people.
• Rickets. This rare condition develops in children with vitamin D deficiency. Supplementing with vitamin D can prevent and treat the problem.

Generally safe

Without vitamin D your bones can become soft, thin and brittle. Insufficient vitamin D is also connected to osteoporosis. If you don't get enough vitamin D through sunlight or dietary sources, you might need vitamin D supplements.

Safety and side effects

Taken in appropriate doses, vitamin D is generally considered safe.

However, taking too much vitamin D in the form of supplements can be harmful. Children age 9 years and older, adults, and pregnant and breastfeeding women who take more than 4,000 IU a day of vitamin D might experience:

• Nausea and vomiting
• Poor appetite and weight loss
• Constipation
• Confusion and disorientation
• Heart rhythm problems
• Kidney stones and kidney damage

Interactions

Possible interactions include:

• Aluminum. Taking vitamin D and aluminum-containing phosphate binders, which may be used to treat high serum phosphate levels in people with chronic kidney disease, might cause harmful levels of aluminum in people with kidney failure in the long term.
• Anticonvulsants. The anticonvulsants phenobarbital and phenytoin (Dilantin, Phenytek) increase the breakdown of vitamin D and reduce calcium absorption.
• Atorvastatin (Lipitor). Taking vitamin D might affect the way your body processes this cholesterol drug.
• Calcipotriene (Dovonex, Sorilux). Don't take vitamin D with this psoriasis drug. The combination might increase the risk of too much calcium in the blood (hypercalcemia).
• Cholestyramine (Prevalite). Taking vitamin D with this cholesterol-lowering drug can reduce your absorption of vitamin D.
• Cytochrome P-450 3A4 (CYP3A4) substrates. Use vitamin D cautiously if you're taking drugs processed by these enzymes.
• Digoxin (Lanoxin). Avoid taking high doses of vitamin D with this heart medication. High doses of vitamin D can cause hypercalcemia, which increases the risk of fatal heart problems with digoxin.
• Diltiazem (Cardizem, Tiazac, others). Avoid taking high doses of vitamin D with this blood pressure drug. High doses of vitamin D can cause hypercalcemia, which might reduce the drug's effectiveness.
• Orlistat (Xenical, Alli). Taking this weight-loss drug can reduce your absorption of vitamin D.
• Thiazide diuretics. Taking these blood pressure drugs with vitamin D increases your risk of hypercalcemia.
• Steroids. Taking steroid mediations such as prednisone can reduce calcium absorption and impair your body's processing of vitamin D.
• Stimulant laxatives. Long-term use of high doses of stimulant laxatives can reduce vitamin D and calcium absorption.
• Verapamil (Verelan, Calan SR). Taking high doses of vitamin D with this blood pressure drug can cause hypercalcemia, and might also reduce the effectiveness of verapamil.

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• Vitamin D: Fact sheet for health professionals. Office of Dietary Supplements. https://ods.od.nih.gov/factsheets/VitaminD-HealthProfessional/. Accessed Dec. 6, 2020.
• Vitamin D: Fact sheet for consumers. Office of Dietary Supplements. https://ods.od.nih.gov/factsheets/VitaminD-Consumer/. Accessed Dec. 6, 2020.
• Vitamin D. Natural Medicines. https://naturalmedicines.therapeuticresearch.com. Accessed Dec. 6, 2020.
• AskMayoExpert. Vitamin D deficiency. Mayo Clinic; 2017.
• Cholecalciferol. IBM Microdemex. https://www.microdemexsolutions.com. Accessed Dec. 11, 2020.
• Gold J, et al. The role of vitamin D in cognitive disorders in older adults. US Neurology. 2018; doi:10.17925/USN.2018.14.1.41.
• Sultan S, et al. Low vitamin D and its association with cognitive impairment and dementia. Journal of Aging Research. 2020; doi:10.1155/2020/6097820.
• Pazirandeh S, et al. Overview of vitamin D. https://www.uptodate.com/contents/search. Accessed Dec. 13, 2020.
• Hassan-Smith ZK, et al. 25-hydroxyvitamin D3 and 1,25-dihydroxyvitamin D3 exerct distinct effects on human skeletal muscle function and gene expression. PLOS One. 2017; doi:10.1371/journal.pone.0170665.

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The hostage rescue operation and an accompanying air assault took place in al-Nuseirat, a dense and often embattled area in the conflict between Israel and Hamas.

8 ways to increase your home’s value

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• Ways to increase the value of your home

Reasons to increase your home value

How to pay for home improvements to increase value, key takeaways.

• While your home's value is determined by many factors, some home improvements could help increase its worth.
• There are multiple ways to pay for upgrades, including cash-out refinancing, a home equity loan or home improvement loan.
• If you plan to sell your home, it's important to determine not just how much improvements will cost, but also how much of that cost you’ll recoup.

The value of your home can increase or decrease due to any number of factors. Some variables out of your control — like how hot your local housing market is or isn’t. But others may be — namely, strategic upgrades to the premises.

Many home improvements can add a significant amount to the value of your home, enhancing your equity stake. While they won’t all recoup their full cost, they definitely will make the home more marketable — and of course, improve your quality of life while you still occupy it.

8 ways to increase the value of your home

There are a variety of ways to add value to your home. Some are simple and fast DIY jobs. Others require an upfront investment and the use of professionals.

1. Clean and declutter

To increase the value of your home, begin by decreasing the amount of stuff that’s inside it. Cleaning and decluttering are relatively inexpensive tasks, even in bigger homes. Professionally cleaning a four-bedroom home averages between $200 and $225, according to HomeAdvisor .

Of course, you could save money by doing the work yourself. Start by going through cabinets and closets and making donation piles. Then clean out drawers and other storage areas, making sure you’re not keeping anything you don’t need or want.

2. Add usable square footage

Homes are valued and priced by the livable square feet they contain, and the more livable square feet, the better, says Benjamin Ross, a Realtor and real estate investor based in Corpus Christi, Texas.

Adding a bathroom, a great room or another needed space to a home can increase function and add value. A separate in-law suite can also be a smart idea.“Most homes do not have this feature,” says Ross, “so adding one sets you apart from the competition when it is time to sell.”

3. Make your home more energy-efficient

Projects that lower utility bills can increase the value of your home. Installing a smart thermostat, for example, helps improve efficiency and save money, says Scott Ewald, director, brand and content marketing at Trane, an HVAC company.

“The right smart thermostat will allow a homeowner to control their home’s climate from anywhere, giving them the power to manage energy costs regardless of whether they are sitting on the couch or away on vacation,” says Ewald. “Such investments in home tech — particularly when connected to the HVAC , which is the largest mechanical system in the home — provides a strong selling point and highlights the home’s overall comfort, functionality, energy efficiency and convenience.”

It can cost between $175 to $1,000 to make this quick upgrade, according to HomeAdvisor , or an average of about $350. However, you could make that money back fairly quickly. A 2024 report from Green Wave Distribution, a heating-systems installer, found that homeowners can save over one-third of their energy bills via such simple steps as appropriate insulation, air sealing and thermostat settings. A combination of all three projects could cut your energy bills by nearly $234 annually.

Other ways to improve your home’s efficiency and value include replacing old, leaky windows, installing energy-efficient home appliances and adding insulation to your home.

4. Spruce it up with fresh paint

A fresh coat of paint can make even dated exteriors and interiors look fresh and new.

Begin by repainting any rooms with an “odd” color scheme, says Timothy Wiedman, a personal finance expert and home-flipper. For example, did you let your 11-year-old daughter paint her bedroom hot pink 10 years ago? If so, that’s a good place to start.

The cost of an interior painting project ranges between roughly $970 and $3,000, with a national average of $1,988, according to HomeAdvisor . Your exact painting budget will depend on room size. HomeAdvisor pegs painting a bathroom — usually the smallest room in the house — somewhere between $150 and $300, while a 330-square-foot living room might cost as much as $2,000. An exterior paint job, on the other hand, will cost much more, with prices ranging from $1,810 to $4,505 (the national average is just over $3,000).

If you just want to repaint a door or a single room, doing it yourself could cost you between $200 and $300. For bigger jobs, though — especially exterior ones — hiring a painter might be worth it, given that professionals can buy paint at wholesale prices, know what sort of finishes to use and are more adept at scaling ladders.

5. Work on your curb appeal

From power washing your driveway to mowing the lawn, improving curb appeal can make a big difference in your home’s value.

Upgrading your landscape can go an especially long way, says Joe Raboine, vice president of Design at Oldcastle APG, a manufacturer of exterior building products. Some ideas: a fresh walkway, shrubs, planters, mulching or even a new patio or outdoor kitchen.

6. Upgrade your exterior doors

Also in the vein of curb appeal, replacing an old front door can work wonders, says Wiedman. In the late ’90s, he and his wife replaced an old, ugly door with a solid mahogany door with a frosted, oval piece of lead glass. He stained the door himself to save money, and the result was “simply stunning.”

Don’t forget the garage doors , too, says Randy Oliver, president of Hollywood-Crawford Door Company. “The front of the home is the first thing you, your neighbors and prospective buyers will see,” says Oliver. “Garage doors often take up the most amount of space on the front of your home, so installing a modern glass panel door or a rustic wood door will dramatically improve your home’s appearance.”

These jobs offer one of the highest returns on investment among home renovations: nearly 200 percent for garage doors, and 188 percent for steel front doors, according to trade journal Remodeling by JLC .

7. Update your kitchen

Many buyers zero in on the kitchen as the central feature of a home, so if yours is outdated, it can ultimately affect how much you garner from a sale. Likewise, if you aren’t able to utilize your kitchen fully due to layout, space or other concerns, you won’t be maximizing the space.

This project, though, will require a lot of money, and you likely won’t get back every dollar you invest. Midrange or modest upgrades come close, though, and actually offer a better ROI than the most elaborate ones: A minor kitchen remodel with midrange appliances costs around $27,500, and adds about $26,400 of value when it’s time to sell, according to Remodeling .

If updating your entire kitchen is too big of an undertaking, even small changes could still have an impact — think coordinating appliances and installing modern hardware on your cabinets .

8. Stage your home

If you’re planning to list your home for sale, consider skipping cosmetic home improvements and go with a home staging service instead. Staging costs about $800 to $2,800 on average, according to HomeAdvisor , but the cost varies based on your needs and home.

Staging services range widely, from decluttering and depersonalization (for example, removing family photos or specific decor) to bringing in rented furnishings and repainting. Simply put, the more work involved to stage it, the more expensive the production will be. A real estate agent can help you determine what sort of staging would make the most impact on your home’s value.

Your home is likely one of your largest assets, so increasing its value contributes to your overall net worth. Raising your home’s value has other benefits, as well, such as:

• More profit when you sell: A higher home value translates to higher asking price when you put the place on the market.
• More tappable home equity: If you need cash, you can borrow against your home’s equity — more so the more your home is worth.
• Some protection from market swings: If your home has a higher value, you might be able to guard against major dips in the housing market.
• No more mortgage insurance: If your home appraises for a higher value, it increases your equity stake — to a level that leads to the elimination of private mortgage insurance premiums.
• Aesthetics and function: Upgrades increase your enjoyment and use of your home.

Source: Angi

There are many ways to finance home improvements. According to the 2024 U.S. Houzz and Home Study , cash (from savings) continues to be the most common way to pay for renovation projects (used 83 percent of the time), followed at a distance by credit cards (37 percent) and secured loans (14 percent). For bigger budget projects, between $50,000 and $200,000, secured loans — like home equity loans or lines of credit — are used 23 percent of the time.

Personal loan

Personal loans allow you to borrow a fixed amount at a fixed interest rate. These loans are unsecured, meaning you don’t have to put your home or other property up as collateral. Many personal loan lenders allow you to borrow as much as $35,000 for home improvements — sometimes more, depending on your credit and other factors.

If you have good credit (which’ll ensure the best rate), and want to get funds relatively quickly, a personal loan can be the simplest, easiest way to go.

Home equity loan or HELOC

Home equity loans are similar to personal loans in that you receive a lump sum of cash at a fixed interest rate and fixed monthly payment. Home equity lines of credit , or HELOCs, work like credit cards — a revolving balance that you can draw on at different intervals — and come with variable rates.

Both borrowing options require you to put your home up as collateral to qualify. They carry lower interest rates than credit cards or personal loans, and the interest might be deductible if you use the money to make eligible home improvements.

These are good options for homeowners who’ve paid off much of their mortgage and so have a significant amount of equity to borrow against. And who need a significant amount, at least $25,000 or so, for their project.

0% APR credit card

A 0% APR credit card charges no interest on balances for a set period, often up to 18 months. Just remember: If you don’t pay your balance off by the time your zero-percent APR offer ends, your card’s interest rate will reset to a higher variable rate, costing you more.

This option can be ideal if you have a smaller-scale project in mind — one that you can pay off by the time the interest-free period ends. A credit card can also work well if you’re able to pay your contractor with it.

Cash-out refinance

A cash-out refinance involves swapping your old mortgage for a new larger one, and receiving the difference in ready money. The extra amount is based on the size of your home equity stake. The refinancing process is just as paperwork-heavy as taking out a mortgage, and you’ll need to pay closing costs.

The most elaborate and time-consuming method, a cash-out refi works best for big projects, and if you were thinking of refinancing anyway — perhaps because of a dip in interest rates since your original mortgage. It’s a good option for homeowners who own significant equity in their home, and who don’t mind continuing to pay off their mortgage for a few more years.

How much do renovations increase home value?

How much remodeling can be done with $100,000, i want to renovate my house. where do i start, what home improvements can i do myself, what is the cheapest way to increase my home’s value, what is the best time to renovate my house.

Article sources

We use primary sources to support our work. Bankrate’s authors, reporters and editors are subject-matter experts who thoroughly fact-check editorial content to ensure the information you’re reading is accurate, timely and relevant.

“ State of Home Spending .” Angi. Accessed June 5, 2024.

“ 2024 U.S. Houzz and Home Study .” Houzz. Accessed June 5, 2024.

“ 2024 Cost Vs. Value Report .” Remodeling by JLC. Accessed June 5, 2024.

Related Articles

The top renovations that increase home value in 2024

Smart ways to use your home equity for remodeling

How to boost your home’s curb appeal

6 ways to turn your home into a moneymaking property

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