There are four variables in the process of adjusting single cash flow amounts for the time value of money:present value (PV), future value (FV), i and n. If you know any three of these, the fourth can be computedeasily

There are four variables in the process of adjusting single cash flow amounts for the time value of money:present value (PV), future value (FV), i and n. If you know any three of these, the fourth can be computedeasily

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter4: Time Value Of Money

Section4.12: Uneven, Or Irregular, Cash Flows

Problem 1ST

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

There are four variables in the process of adjusting single cash flow amounts for the time value of money:
present value (PV), future value (FV), i and n. If you know any three of these, the fourth can be computed
easily

Definition Definition Net amount of cash that an entity receives and expends over the course of a given period. For a business to continue operating, positive cash flows are required, and they are also necessary to produce value for investors. Investors in particular prefer to see growing cash flows even after capital expenditures have been paid for (which is known as free cash flow).

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