Present Value Formula

Present Value Formula

Present Value of future cash flows can be simply calculated multiplying the cash flows with the discount factor. This formula can be mathematically expressed as under;

C x (1+i)^-n

Where

C=Cash flow

n= period in which cash flow occurring

Example

Expected Cash flow at end of year 3 = 40,000

Solution

C x (1+i)^-n

40,000 x (1+12)^-3

=28,471