PV Calculator Online
Calculate present value (PV) of future cash flows. Essential for investment analysis, valuation, and understanding the time value of money.
Amount you'll receive in the future
Interest rate or discount rate
What is Present Value (PV)?
Present Value (PV) is the current worth of a future sum of money, given a specific rate of return (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.
PV calculations are essential for investment analysis, business valuation, bond pricing, and making informed financial decisions about future cash flows.
How to Use the PV Calculator
- Enter future value: Input the amount you expect to receive in the future.
- Enter discount rate: Input the interest rate or discount rate (often the required rate of return or cost of capital).
- Enter time period: Input the number of years until you receive the future value.
- Calculate: Click "Calculate Present Value" to see the present value and discount amount.
Understanding Present Value
PV Formula
PV = FV / (1 + r)^n, where FV is future value, r is discount rate, and n is number of periods. This formula discounts future cash flows to their present value.
Time Value of Money
The concept that money available today is worth more than the same amount in the future because it can be invested and earn returns. PV accounts for this time value.
Discount Rate
The discount rate reflects the opportunity cost of capital, risk, and inflation. Higher discount rates result in lower present values, reflecting higher risk or opportunity cost.
Example Calculation
If you expect to receive £10,000 in 5 years with a 5% discount rate:
PV = £10,000 / (1 + 0.05)^5
PV = £10,000 / 1.2763
PV = £7,835.26
This means £10,000 in 5 years is worth £7,835.26 today at a 5% discount rate.
Frequently Asked Questions
What discount rate should I use?
The discount rate depends on your context. For investments, use your required rate of return. For business valuation, use WACC. For risk-free investments, use government bond rates.
How does time affect present value?
The longer the time period, the lower the present value (all else equal). This is because money has more time to grow, so future money is worth less in today's terms.
What's the difference between PV and FV?
Present Value (PV) is today's value of future money, while Future Value (FV) is the future value of today's money. PV discounts future amounts, FV compounds present amounts.
How is PV used in investment decisions?
PV is used to compare investments, evaluate projects, price bonds, and determine if future cash flows justify current investments. Investments with positive NPV (net present value) are typically worthwhile.
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