Present Value Calculator
Discount future money back to today. Determine what future cash flow is worth in current purchasing power at a designated discount rate.
How to use the Present Value Calculator
- 1Enter expected future amount.
- 2Enter discount rate (hurdle rate or expected return).
- 3Enter number of years until money is received.
How Present Value is Calculated
Divide the future value by (1 + discount rate) raised to the power of number of compounding periods.
FV is expected future cash, r is annual discount rate, and t is time horizon in years.
- 1PV = $50,000 / (1 + 0.07)^5 = $50,000 / 1.40255 = $35,649.31
What affects Present Value results
- The discount rate chosen (higher discount rate significantly lowers present value).
- Time delay before receipt.
Frequently Asked Questions
How do you choose a discount rate?
Common discount rates include the risk-free rate (government bond yields), cost of capital (WACC), or your opportunity cost in benchmark index funds.
Why is present value important for evaluating investments?
Because of inflation and the time value of money, a dollar today is worth more than a dollar tomorrow. Present value reveals what future payouts are truly worth right now.
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