Present value and Standard: Difference between pages

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(PV).  
1. ''Quality - regulation - noun.''


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]].
A level of attainment or quality, especially a minimum level or a mandatory level.


Including levels established, monitored and enforced by regulators and legal authorities.


'''Example 1'''
Examples include the Standards developed and issued by the ISO, and International Financial Reporting Standards (IFRS).


If $110m is receivable one year from now, and the appropriate cost of capital for this level of risk (r) is 10% per year,


the Present value is:
2.  ''Documentation - noun.''


PV = $110m x 1.1<sup>-1</sup>
The document containing the detailed description of a formal Standard.


= '''$100m'''.


3.  ''Adjective.''


And more generally:
Normal, average or usual.


PV = Future value x Discount factor(DF)
For example, a ''standard cost'' in a production or service process.


Where:


DF = ( 1 + r )<sup>-n</sup>
==See also==
* [[Bespoke]]
* [[Binding Technical Standard]]
* [[Boilerplate]]
*[[Climate Bonds Standard]]
*[[FAST Modelling Standard]]
* [[Gold standard]]
*[[International Financial Reporting Standards]]  (IFRS)
* [[ISO]]
* [[Non-standard monetary policy]]
*[[Normal contribution rate]]  = standard contribution rate
* [[Off the shelf package]]
*[[Regulation]]
*[[Regulatory standard]]
*[[Regulatory Technical Standard]]  (RTS)
*[[Software]]
*[[Standard contribution rate]]
*[[Standard cost]]
*[[Standard deviation]]
*[[Standard Listing]]
*[[Standard rated]]
*[[Standard Setting Body]]
*[[Standard variable rate]]
*[[Tailor]]
*[[White-label]]


:r = cost of capital per period; ''and''
[[Category:Accounting,_tax_and_regulation]]
:n = number of periods
[[Category:The_business_context]]
 
[[Category:Identify_and_assess_risks]]
 
'''Example 2'''
 
If $10m is receivable one year from now, and the cost of capital (r) is 6% per year,  
 
the Present value is:
 
PV = $10m x 1.06<sup>-1</sup>
 
= '''$9.43m'''.
 
 
'''Example 3'''
 
Now let's change the timing from Example 2, leaving everything else the same as before.
 
If exactly the same amount of $10m is receivable, but later, namely two years from now,
 
and the cost of capital (r) is still 6% per year,
 
the Present value falls to:
 
PV = $10m x 1.06<sup>-2</sup>
 
= '''$8.90m'''.
 
 
The longer the time lag before we receive our money, the less valuable the promise is today.
 
This is reflected in the lower Present value for the two years maturity cash flow of $8.90m, compared with $9.43m Present value for the cash flow receivable after only one year's delay.
 
 
== See also ==
* [[Adjusted present value]]
* [[CertFMM]]
* [[Compounding factor]]
* [[Discount factor]]
* [[Annuity factor]]
* [[Discounted cash flow]]
* [[Future value]]
* [[Internal rate of return]]
* [[Intrinsic value]]
* [[Net present value]]
* [[Profitability index]]
* [[Terminal value]]
* [[Time value of money]]
 
[[Category:Corporate_finance]]
[[Category:Long_term_funding]]
[[Category:Manage_risks]]
[[Category:Manage_risks]]
[[Category:Trade_finance]]
[[Category:Risk_frameworks]]
[[Category:Risk_reporting]]

Revision as of 15:28, 4 January 2023

1. Quality - regulation - noun.

A level of attainment or quality, especially a minimum level or a mandatory level.

Including levels established, monitored and enforced by regulators and legal authorities.

Examples include the Standards developed and issued by the ISO, and International Financial Reporting Standards (IFRS).


2. Documentation - noun.

The document containing the detailed description of a formal Standard.


3. Adjective.

Normal, average or usual.

For example, a standard cost in a production or service process.


See also

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