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Present Value

The value of money in the future is the Present Value.

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The value of money in the future can be calculated to Present Value or Present Worth with the "discount rate" as

P = F / (1 + i)n         (1)


F = future cash flow (positive for receipts, negative for disbursements)

P = present value

i = discount rate

n = number of interest periods

The factor "1 / (1 + i)n" is known as the "single payment present worth factor".

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Example - Present Value

The present value of a future cash flow of 7 in period 10 with discount rate 5% (i = 0.05) can be calculated as

P = (7) / (1 + 0.05)10

    = 4.30

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Related Topics

  • Economics

    Engineering economics - cash flow diagrams, present value, discount rates, internal rates of return - IRR, income taxes, inflation.

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