Convert future money into current value for better decision comparison.
Overview
Present value translates future cash into today's terms.
It is useful when choosing between immediate and deferred payments.
A higher discount rate reduces present value because opportunity cost is higher.
This tool helps compare offers on a consistent time-value basis.
Steps
Input the value expected in the future.
Use required return or opportunity cost.
Set years or periods until payment.
Match timing to your discount assumptions.
Review current-equivalent value.
Math
PV = FV / (1+r)^n
Present value discounts a future amount by the chosen rate over the number of periods.
Worked cases
PV = 50,000/(1.08)^5
PV is about $34,029.
Discount at 12% instead of 8%.
PV is lower because required return is higher.
Use same rate with fewer periods.
PV rises when payment is closer in time.
Why use this
Questions