Present Value Calculator
Calculate the present value of future cash flows with discounting
Cash Flow Details
Present Value Results
Enter cash flow details to calculate present value
Understanding Present Value
What is Present Value?
Present Value (PV) is the current worth of a future sum of money, given a specified rate of return or discount rate. It's based on the principle that money available today is worth more than the same amount in the future due to its potential earning capacity.
Formula:
PV = FV / (1 + r/m)^(m×n)
Where: FV = Future Value, r = Discount Rate, m = Compounding Frequency, n = Number of Years
Time Value of Money
The time value of money is the concept that money available now is worth more than the same amount in the future. This is because money can earn interest or investment returns over time, making it more valuable when received earlier.
- •Inflation reduces purchasing power over time
- •Opportunity cost of delayed receipt
- •Investment potential of current funds
- •Risk and uncertainty of future payments
Common Applications
Investment Analysis
Evaluate investment opportunities by comparing present values of expected returns
Loan Valuation
Calculate the present value of future loan payments to determine loan terms
Business Valuation
Discount future cash flows to determine company or project value
Retirement Planning
Calculate how much to save now to reach future retirement goals
Insurance Claims
Determine present value of structured settlements or annuities
Legal Settlements
Calculate lump-sum equivalent of future payment streams
Discount Rate Examples
| Scenario | Typical Rate | Risk Level | Use Case |
|---|---|---|---|
| Government Bonds | 2-4% | Very Low | Risk-free rate benchmark |
| Corporate Bonds | 4-8% | Low to Medium | Company debt valuation |
| Stock Market | 8-12% | Medium | Equity valuation |
| Venture Capital | 15-25% | High | Startup investments |
| Personal Loans | 5-15% | Varies | Consumer credit risk |
| Inflation Rate | 2-3% | Benchmark | Minimum return requirement |
Financial Decision Making
When PV is High
Indicates good investment opportunity
- • Low discount rates
- • Short time periods
- • Certain cash flows
- • Low risk investments
When PV is Low
Requires careful consideration
- • High discount rates
- • Long time periods
- • Uncertain cash flows
- • High risk investments