Cash Flow 100
Interest Rate 5
What is the present value?
The present value is the ongoing value of the future sum of money or expected income stream with a specified rate of return. The present value is always less than or equal to the future value because the future value includes interest earned. The expected cash flow is discounted at the discount rate and that is the actual expected rate of return.
The formula for calculating present value is:
Present value = FV/ (1+r) n
FV = future value.
R = rate
N = number of years amount invested
The calculation of present value or discounted present value is very important in many financial calculations.
Net present value:
The net present value is the difference between the present values of cash inflows and cash outflows in a particular time slot. It is used in capital budgeting to estimate the profitability of an investment. NPV is particularly associated with learning of broad financial concepts and calculations. It is a metric used for financial analysis and accounting. The positive net present value indicates earning form the investment and negative net present indicated as the net loss.
The formula for calculating the net present value:
Net present value =
Ct = Net cash inflow during the period.
Co = Total initial investment.
R = Discount rate.
T = number of years amount invested.
The time value for money:
The present value is the backbone of the finance. There won’t be any investment without present value and it is an important element in the time value of money.
The components included in the present value calculator:
- Number of the period: the numbers of years or months the amount invested.
- Interest rate: The interest rate on the amount invested.
- Periodic deposit: The regular deposit of amount on the investment.
- The PTM made at the beginning or end of each compounding period.
This calculator is used to calculate the present value of the specified amount of money in the future. With this calculator, the investor can estimate the profitability of the investment.