Case Study:

Emily Rodriguez is a determined and inspired entrepreneur. She has taken the bold step of starting her own wellness center "Harmony Haven." Emily's vision is to create a serene sanctuary offering various wellness services, from yoga classes to holistic therapies.

As Harmony Haven's popularity grows, Emily starts envisioning its expansion. She dreams of renovating an adjacent property to accommodate more services, including a wellness caf and additional therapy rooms. To make this vision a reality, she calculates the required funds and estimates that the renovation project will take one year to complete. Emily faces a crucial decision that involves Time Value of Money.

Option 1: Immediate Financing: Emily can secure a bank loan of $100,000 to fund the renovation project right away. She calculates that the loan comes with an annual interest rate of 8%, and she will need to make monthly interest payments for the first year. This option allows her to start the renovation immediately, but she'll need to manage interest payments in the first year.

Option 2: Delayed Financing: Alternatively, Emily can wait for six months and then apply for the loan. This approach gives her time to save up a portion of the required funds, reducing the loan amount to $80,000. However, by delaying the financing, the renovation project will also start six months later, impacting Harmony Haven's expansion timeline.

Emily analyzes the options using TVM principles:

Immediate Financing:

Loan Amount: $100,000

Annual Interest Rate: 8%

Monthly Interest Payments: $8,000 per year / 12 months = $666.67 per month

Total Interest Payments (1 year): $8,000

Delayed Financing:

Loan Amount: $80,000

Annual Interest Rate: 8%

No Interest Payments for the first 6 months

Total Interest Payments (6 months): $3,200

Analysis:

After reading the case study, answer the following questions:

1. How did Emily use TMV to help analyze her decision?
2. Which option do you think Emily should choose? Why?