Page 1 : | me yalue of or, t the end of each year. Theref, ry year a refore, is an, made or y Multiplied by showing (1 + 1): nulty due the interest for, re, EV = Ax CVAF py (Lr), 1,00,000 x 4.641 (1 + 0.10), , 5,120,010, , pRESENT VALUE, nt Value of an entity can be defined as the pre, sent worth of a, , The Prese, prospective amount of money or a stream of cash flows with a specif, ecified return ra, Le,, , The present Value is conversely related to the discount rate. Th, ate implies @ lower present value and vice versa. Accurate ae us, a higher discount, is, therefore, the key to appropriately valuing future cash “ditt Hite CASGGE, Ws, be it earnin, gs or, , obligations., The calculation of the Present Value holds, : extreme impo ;, calculations like Net Present Value, spot rates, bond ene in different financial, The apposite definition for Present Value (PV) is given as cs and pension obligations., higher future cash payments which are discounted at a seme es value of one or, Interest rate., , I, , q, Y phy FV, , Calculating the Present Value, Generally, there are three factors which influence the calculation of the Present Val, - ; n aiue:, (i) The size of the cash flow: The futur low i, : f e cash flow implies the size of the cash, . n, , : en to be received. The future cash flow and the present value ave ‘, , directly. A larger future cash flow implies a higher present value With rising uncertainty, the investor antici i, ; cipating, the receipt of a cash flow has to presume higher risk. This presumed level of high, , bei: le" the value that should be paid at present for the future cash flow. The, = uhisk” involved is calculated by the rate of return which you might require from, , another investment aimed at generating cash flow with the same risk level., , (ii) The risk involved in cash flow:, , (iii) The waiting period involved in cash flow: A longer waiting period lowers the, t value of a cash flow !s accrued to, , ) value of cash flow. This reduction in the presen, as two reasons:, , (a) The money which has been in, , which would earn you interest durin, e not sure about getting the expected cash, , h time passing by thereby lowering the value, re cash flow., , could be invested in some other project, , vested, e been waiting., , g the years which you hav, , , , , , , , , , , , , of : ill have, () If, in case, you ar fla ae ae be, _to presume more risk wit ara), , paid by someone for that futu, , culation of Present Value ee, ved at a, ee sum of money [0 be receive, resent value is the value today of a sum i the figures 0” 2 current footing 2, xample, if We Wen, , us to Pp, terms today’s, , rupees. For ©, , t values allows, , time. Presen, made in, , mparisons may be, , eee, —