4 ms·

> I just care about the final bottom-line price Then you are making bad decisions by not considering the time value of money. And I think it's obvious that tha

> I just care about the final bottom-line price Then you are making bad decisions by not considering the time value of money. And I think it's obvious that that's the case and then you can adjust your position to take that into account. Consider. I have a car that I will sell to you for $100,000. Alternatively, I will offer you a financing arrangement where you get the car today and in 10 years you pay me $105,000. Now, in this scenario, two things are immediately obvious. First, I'm really dumb for making this offer. I have little to gain and it's a super risky loan for me and it gets really bad over time. Second, you'd be dumb to accept the pay now option over the financing, despite the fact that the final bottom-line price is higher for financing. Even a ridiculously conservative, barely over inflation, adjustment of 4% per year gives you an extra ~$43,000 at the end of that 10 years by taking the financing.

chrisseaton 7y ago
No, you're misunderstanding how this works. > gives you an extra ~$43,000 So that's counted in your bottom-line price, isn't it? All that matters is the price at the end, not how it was arrived at. The finance price on its own gives no information.
- antonvs 7y ago
  > All that matters is the price at the end Paying $1000 today is not the same as paying $1000 in six month's time - that's the time value of money that people have mentioned. If you just add up total amounts without factoring in differences between how payments are distributed over time, your comparison can be incorrect, since the larger number in that case isn't necessarily the more expensive one. To do a proper comparison, you need to calculate the net present value (NPV) or a similar measure that takes into account time value. See e.g. https://corporatefinanceinstitute.com/resources/knowledge/valuation/time-value-of-money/ https://corporatefinanceinstitute.com/resources/knowledge/va...

chrisseaton 7y ago

No, you're misunderstanding how this works. > gives you an extra ~$43,000 So that's counted in your bottom-line price, isn't it? All that matters is the price at the end, not how it was arrived at. The finance price on its own gives no information.

antonvs 7y ago
> All that matters is the price at the end Paying $1000 today is not the same as paying $1000 in six month's time - that's the time value of money that people have mentioned. If you just add up total amounts without factoring in differences between how payments are distributed over time, your comparison can be incorrect, since the larger number in that case isn't necessarily the more expensive one. To do a proper comparison, you need to calculate the net present value (NPV) or a similar measure that takes into account time value. See e.g. https://corporatefinanceinstitute.com/resources/knowledge/valuation/time-value-of-money/ https://corporatefinanceinstitute.com/resources/knowledge/va...