The Value of Money

For the exclusive use of C. Hou, 2016.

W14403

TIME VALUE OF MONEY: THE BUY VERSUS RENT DECISION

Sean Cleary and Stephen Foerster wrote this case solely to provide material for class discussion. The authors do not intend to

illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other

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Copyright © 2014, Richard Ivey School of Business Foundation

Version: 2015-06-05

In May 2013, Rebecca Young completed her MBA and moved to Toronto for a new job in investment

banking. There, she rented a spacious, two-bedroom condominium for $3,000 per month, which included

parking but not utilities or cable television. In July 2014, the virtually identical unit next door became

available for sale with an asking price of $620,000, and Young believed she could purchase it for

$600,000. She realized she was facing the classic buy-versus-rent decision. It was time for her to apply

some of the analytical tools she had acquired in business school — including “time value of money”

concepts — to her personal life.

While Young really liked the condominium unit she was renting, as well as the condominium building

itself, she felt that it would be inadequate for her long-term needs, as she planned to move to a house or

even to a larger penthouse condominium within five to 10 years — even sooner if her job continued to

work out well.

Friends and family had given...