Present value

(PV). Today’s fair value of a future cash flow, calculated by discounting the future cash flow at the appropriately risk adjusted current market cost of capital.

For example if $110m is receivable one year from now, and the cost of capital (r) is 10% per year, the Present value is: PV = $110m x 1.1^-1 = $100m

And more generally: PV = Future value x Discount Factor (DF) Where: DF = (1+r)^-n r = cost of capital per period; and n = number of periods

See also

• Adjusted present value
• Compounding factor
• Discount factor
• Discounted cash flow
• Future value
• Intrinsic value
• Net present value
• Profitability index
• Terminal value
• Time value of money