TAMIL NADU NATIONAL LAW SCHOOL

__________________________________________________

2016-2017

FINANCIAL MANAGEMENT AND AUDITING PROJECT

ON TIME VALUE OF MONEY

Submitted by- Submitted to-

Raghav Rajeev Dr.P. Kumaresan
BC0140043

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 DECLARATION

I, Raghav Rajeev hereby declare that the project work entitled TIME VALUE OF MONEY
submitted to Tamil Nadu National Law School; Tiruchirappalli, is the record of a bonafide work
done by me under the supervision and guidance of Dr. P. Kumaresan, Faculty of business
statistics, Tamil Nadu National Law School; Tiruchirappalli.

All information furnished in the project is true to the best of my knowledge and belief devoid of
plagiarism. If under the circumstances plagiarism is truly established, then the Law School may
be pleased to proceed with any action against me according to the Universitys rules and
regulations.

Raghav Rajeev

B.Com.,LL.B(H).

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 SUPERVISORS CERTIFICATE

This is to certify that the Project entitled: TIME VALUE OF MONEY submitted to the Tamil
Nadu National Law School; Tiruchchirappalli, in fulfilment of the requirements for internal
component for B.com; LL.B (HONS.), Third year is a bona-fide research work carried out by
Raghav Rajeev under my supervision and guidance. No part of this study has been submitted to
any University for the award of any Degree or Diploma whatsoever.

Dr. P. Kumaresan ( )

Date:

Place: Tiruchchirappalli

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 ACKNOWLEDGEMENTS

At the outset, I take this opportunity to thank my Professor Dr. P.Kumaresan from the bottom of
my heart who has been of immense help during moments of anxiety and torpidity while the
project was taking its crucial shape.

Secondly, I convey my deepest regards to the administrative staff of TNNLS who held the
project in high esteem by providing reliable information in the form of library infrastructure and
database connections in times of need.

Thirdly, the contribution made by my parents and friends by foregoing their precious time is
unforgettable and highly solicited. Their valuable advice and timely supervision paved the way
for the successful completion of this project. Hence as a student, I am extremely grateful and
forever deeply indebted to him.

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 PREFACE

This project is intended to carry out an extensive research on the given topic by the supervisor.
The material evidence presented in this project is purely based on secondary sources and also
certain standard of textual analysis have been thoroughly detailed. The research and analysis
conducted by the researchers are bona-fide and purely for academic purposes.

Every effort is made to keep the project error free. I would gratefully acknowledge the
suggestions to improve the project to make it more useful.

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Contents PgNo.
INTRODUCTION .......................................................................................................................... 7
AIMS AND OBJECTIVE ........................................................................................................... 8
RESEARCH METHODOLOGY ................................................................................................ 8
Reasons for time value of money.................................................................................................... 9
CALCULATION OF TIME VALUE OF MONEY IN THE TELECOM INDUSTRY .............. 10
Bharti Airtel .................................................................................................................................. 10
Reliance Communication .............................................................................................................. 12
Vodafone Group............................................................................................................................ 14
MTNL ........................................................................................................................................... 16
Idea Cellular Ltd ........................................................................................................................... 18
Conclusion .................................................................................................................................... 20

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INTRODUCTION
Money has time value. A rupee today is more valuable than a year hence. It is on this concept
the time value of money is based. The recognition of the time value of money and risk is
extremely vital in financial decision making. Most financial decisions such as the purchase of
assets or procurement of funds, affect the firms cash flows in different time periods. For
example, if a fixed asset is purchased, it will require an immediate cash outlay and will generate
cash flows during many future periods. Similarly if the firm borrows funds from a bank or from
any other source, it receives cash and commits an obligation to pay interest and repay principal
in future periods.

The firm may also raise funds by issuing equity shares. The firms cash balance will increase at
the time shares are issued, but as the firm pays dividends in future, the outflow of cash will
occur. Sound decision-making requires that the cash flows which a firm is expected to give up
over period should be logically comparable. In fact, the absolute cash flows which differ in
timing and risk are not directly comparable. Cash flows become logically comparable when they
are appropriately adjusted for their differences in timing and risk. The recognition of the time
value of money and risk is extremely vital in financial decision-making. If the timing and risk of
cash flows is not considered, the firm may make decisions which may allow it to miss its
objective of maximising the owners welfare. The welfare of owners would be maximised when
Net Present Value is created from making a financial decision. It is thus, time value concept
which is important for financial decisions. Thus, we conclude that time value of money is central
to the concept of finance. It recognizes that the value of money is different at different points of
time. Since money can be put to productive use, its value is different depending upon when it is
received or paid. In simpler terms, the value of a certain amount of money today is more
valuable than its value tomorrow. It is not because of the uncertainty involved with time but
purely on account of timing. The difference in the value of money today and tomorrow is referred
as time value of money.

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 AIMS AND OBJECTIVE

The major objective of this Research is to understand the nature of shares in time value of money
and to compute it in a volatile market

RESEARCH METHODOLOGY

This is the doctrinal research project and the relevant material for this project has been collected
from the primary as well as secondary sources.

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Reasons for time value of money
Money has time value because of the following reasons:

1. Risk and Uncertainty : Future is always uncertain and risky. Outflow of cash is in our
control as payments to parties are made by us. There is no certainty for future cash inflows.
Cash inflows is dependent out on our Creditor, Bank etc. As an individual or firm is not
certain about future cash receipts, it prefers receiving cash now.
2. Inflation: In an inflationary economy, the money received today, has more purchasing
power than the money to be received in future. In other words, a rupee today represents a
greater real purchasing power than a rupee a year hence.
3. Consumption: Individuals generally prefer current consumption to future consumption.
4. Investment opportunities: An investor can profitably employ a rupee received today, to
give him a higher value to be received tomorrow or after a certain period of time. Thus, the
fundamental principle behind the concept of time value of money is that, a sum of money
received today, is worth more than if the same is received after a certain period of time. For
example, if an individual is given an alternative either to receive ` 10,000 now or after one
year, he will prefer ` 10,000 now. This is because, today, he may be in a position to purchase
more goods with this money than what he is going to get for the same amount after one year

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CALCULATION OF TIME VALUE OF MONEY IN THE TELECOM
INDUSTRY

Bharti Airtel

Share Price as on December 29 , 2016 : Rs.305.65

Share Price as on March 29 , 2016 : Rs.345.60

Present Value of Single Sum of Money : Rs. 364.75

Annual rate of Interest ( r) ; 345.60 -305.65 = 0.1307 x 100 = 13.07 %

305.65

Future Value of Single Sum Money = Present Value of Single Sum of Money ( 1+r)n
5
= 364.75 1 + 0.1307
100
= 364.75 ( 1+0.001307)5
=
364.75 (1.00655211)
= Rs. 367.139852

Present Value of Single Sum of Money = Future value of Single Sum Money ( fv) 1
1+r

5
= 1000000 1
1+0.1307

= 1000000 1
1.00655211

= 1000000 ( 9.99349054)

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 993490.54 = 2874.60 Shares
345.60

Analysis of Bharti Airtel Shares

The share price of Bharti Airtel on December 29 , 2016 was 305.65 although the price of the
shares had witnessed a slim increase on March 29 , 2016. The future value which was
considered for five years is 367.13 which shows that even if there is volatile market in the
Telecom Industry , Bharti Airtel has managed to keep its prices or is predicted to keep its
prices in stability without any volatile fluctuation in the Asset Market.
Although , shares is considered to be volatile and unpredictable in the Financial Market ,
Bharti Airtels performance shows that its performance is reliable for its investors.
If the investors intends to earn 10 Lakh as its future value in 5 years he has to purchase
around 2874 shares. In a company or multinational like Bharti Airtel therefore , to earn more
, you need not purchase a significant amount of shares.

The important factor that affect value of shares of Bharti Airtel its consumption , in February
2016 the share price was between 330 to 335 and the fall in average share price from 400 to
335 due to emergence of new telecom companies in the market.

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Reliance Communication

Share price on December 30 , 2016 = Rs.34.00

Share price on March 30, 2017 = Rs. 37.95

Present Value of Single Sum of Money = Rs.32.45

Annual Interest rate = 37.95 -34.00 = 0.1161 x 100 = 11.61 %

34.00

Future Value of Single Sum Money = Present Value of Single Sum of Money ( 1+r)n
5
= 32.45 1 + 0.1161
100

= 32.45 ( 1+ 0.001161)5

= 32.45 ( 1.001161)5

= 32.45 X 1.02692328

= Rs 33.3236604

Present Value of Single Sum of Money = Future value of Single Sum Money ( fv) 1
1+r
5
= 100000 1
1.001161

= 100000 1
1.02692328

= 1000000 (0.9737 )

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 = 973700
32.45

= 30,006.1633 Shares

Analysis of Reliance Communication

Reliance Communications Industry has had stable rate in the market with Rs 34 as its Share
Value on December 2016. It has maintained a steady rate in the telecom industry and share
price hasnt faced any fluctuation throughout the three months. Its average share price
throughout the year has been Rs. 32.45. The rate of return has been 11.61 within this three
months , which means that the company has maintained a decent share price.
The future value of the share is Rs. 33.34 , but since Jio has entered the market the
calucaltiom being made for reliance can be subject to change as it has increased the
consumers in the market ,more and more people have subscribed to Reliance
telecommunications. Also the amount the risk the Reliance industry has undergone after
pooling in huge investments in the telecommunications industry, therefore in the coming 5
years we might see significant change in the share price.

Moreover , for a Shareholder to get a substantial return from the investment such as 10 lakh
he must invest in more 30,000 Shares. Which means that the amount return to amount shares
is very less in this company.

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Vodafone Group

Share price on December 30 , 2016 = Rs.199.85

Share price on March 30, 2017 = Rs.210.75

Present Value of Single Sum of Money = Rs.197.25

Annual Interest rate = 10.9 = 0.05525982 x 100 = 5.5 %

197.25

5
Future Value = 197.25 1+ 0.05525982
100
= 197.25 (1.0005525982 )5

= 197.25 (1.00276605 )

= Rs 197.795603

Present Value =
1000000 1
1.00276605

= 1000000 (0.99724158)

= 997241.58 = 5055.7241 Shares

197.25

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Analysis of Vodafone Group

The share price of Vodafone in the year 2015 was 211.70 , due to corporate warfare and
emergence of Jio. The share price in the year 2016 has witnessed a steep decline. Vodafone
has started the month of December with share price of 199.85 and has witnessed a fluctuating
price ever since averaging 199 this year. In the month of March 2017 , it has increased its
value of 211 due to Merger deal with Idea. Which also increased the share price of Idea
cellular network by 29 %.
The present value of Shares in Vodafone , or the amount of investment required for a
shareholder to receive a substantial return in the market is around 5000 , but the company has
not been a safe environment for investment as there has been significant dip in its market
price of its shares

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 MTNL

Share price on December 30 , 2016 = Rs 20.30

Share price on March 30, 2017 = Rs 24.10

Present Value of Single Sum of Money = Rs 21.90

Annual Interest rate = 3.8 = 0.1871921 x 100 = 18.71 %

20.30

5
Future Value = 21.90 1 + 0.1871921
100

= 21.90 (1.00940204 )
= Rs 22.1059047

Present Value = 1000000 1

1.0094024

= 1000000 (0.99068518 )

= 9906685.18
21.90

= 45296.7662 Shares

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Analysis of MTNL

Mahanagar Telecom Nigam Ltd has had a constant performance in the share market. Since it
is a state owned public corporation and the Government of India owns 100 % of the share its
prices has remained constant regardless of the various market forces. Price of Share in the
month of December has been around Rs 20 had has a constant performance with the average
share price of MTNL being 21.90.
The rate of return has been around 18.71 which is healthy performance for any Shareholder
in the market. The future value in market for a risk taker is comparatively lesser than Bharti
Airtel and Vodafone. And the for a risk taker to earn more return it is disappointment in the
stock market , as the shareholder has to invest over 4000 shares in the period of 5 Year to
earn a substantial amount of return.

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 Idea Cellular Ltd

Share price on December 30 , 2016 = Rs 74.00

Share price on March 30, 2017 = Rs 88.85

Present Value of Single Sum of Money = Rs.107.20

Annual Interest rate = 14.85 = 0.20067568 x 100 = 20.06 %

74.00

5
Future Value of Money = 107.20 1 + 0.20067568
100

= 107.20 ( 1+ 0.002006755 )5

= 107.20 (1.00200676)5

= 107.20 ( 1.01007415 )

= Rs108.279949

5
Present Value = 10000000 1
1 + 0.20067568

= 1000000 1
1.01007415

= 1000000 (0.99002633)

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 990026.33
107.20

= 9,238.32025 Shares

Analysis of Idea Cellular Ltd

With the Vodafone merger deal the Sharemarket has witnessed a steep increase in the share
value of shares of Idea to more 29 % percent which makes it more interesting investment.
Investors willing to take excessive amount of Risk can invest in Idea has its share has had an
upward movement for the past three months. The value of share of Idea Cellular Network in
the month of December was around Rs 74 , in the month of February and March it had
witnessed a massive increase to up and around 107.20 rupees. Right now in the month of
March due to the UP elections Ideas Share price has stabilized to 88.85

With prospective future value predicted to be around 108 Rupees and the shares required to
get more prosperous return around 9000 Idea Cellular Ltd is an ideal investment for those
who intend to take risks in these share due to volatile nature of it.

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Conclusion

Time value of money is one of the most important concepts and theory in the world of finance.
The change in value of these assets due to the day to day affairs in the world. From consumer
behavior to risk in the particular asset and also government policies such as demonetization ,
elections etc have a radical change in the value of these assets and also in the return for the
shareholders and the investors in the market. Therefore , the above formulaes and calculations
are important in determining not only value of the asset but also the risk in it.
This research has determined the value of shares in the Telecom industry with companies like
Bharti Airtel , MTNL , Vodafone , idea and Reliance. The performance of Shares in the telecom
industry or the value shares fluctuate more on consumer demand and investment. But in the past
year due to merger deal being signed by Vodafone , Modi governments demonetization policy
and the corporate warfare with Reliance Jio . Shares have fluctuated drastically , therefore we
can conclude in this Research that the Telecom Industry shares have had constant performance
regardless of these changes

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