Problem 1 The cash flow shown in Figure 1 is in $1000 units. With an interest rate of 10%, determine the present worth of the cash flow. 2 3 5 7 10 4 6 8 9 $500 $600 $700 S800 $900 $1000 S1100 $1200 $1300 $1400

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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.