Present Value of Cash Flows
Analyze the real worth of future income. This tool takes a series of future payments and 'discounts' them back to their value in today's dollars, helping you evaluate contracts or investments.
Future Cash Inflows
What is the present value of cash flows?
The present value (PV) of future cash flows is the total value today of a stream of future payments, discounted at a specific interest rate. It reflects the principle that money received in the future is worth less than money held today.
How do I calculate the PV of multiple cash flows?
You calculate the present value of each individual cash flow using the formula PV = FV / (1 + r)ⁿ, and then sum all those individual present values together.
What is the difference between PV and NPV?
PV (Present Value) is the sum of all future cash inflows. NPV (Net Present Value) is the sum of all inflows MINUS the initial investment cost. PV tells you what the future money is worth; NPV tells you the net profit of the deal.
Why is the discount rate so important?
The discount rate determines how aggressively you "shrink" future money. A higher discount rate means future money is worth significantly less today, while a lower rate makes future money more valuable.