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Concept of Present Value

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WHY IS THE CONCEPT OF PRESENT VALUE SO IMPORTANT FOR CORPORATE FINANCE?
The importance of concept of present value to the world of corporate finance is that present value calculations are widely used in business and economics to provide a means to compare cash flows at different times. Present Value’s definition and simplistic formula used for normal purchases, the concept’s importance to corporate finance and why present value is the very first topic taught in finance classes explain that present value is an essential knowledgeable tool to ensure we make the best decisions with our money.
However, first, What Does Present Value - PV Mean? Present value is “the current worth of a future sum of money or stream of cash flows given a …show more content…

$7700 to be received three years from now with a 5% interest rate PV = 7700 / (1 + .05) ^ 3 = 7700 / (1.157625) = $6651.55 3b. $1500 to be received five years from now with a 7% interest rate PV = 1500 / (1 + .07) ^ 5 = 1500 / (1.4025517) = $1069.48 3c. $7200 to received two years from now with an 11% interest rate PV = 7200 / (1 + .11) ^ 2 = 7200 / (1.2321) = $ 5843.68 3d. $ 680,000 to be received eight years from now with a 9% interest rate. PV = 680000 / (1 + .09) ^ 8 = 680000 / (1.9925626) =

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