24.4.2. Present Value (PV)

Try these first

1. 1.

   What is the formula for calculating Present Value?

   Hint

   Remember, you need to discount future cash flows to today’s value.

2. 2.

   If you have a future value of ₹20,000 to be received in 2 years at an interest rate of 10%, how would you calculate PV?

   Hint

   Plug in the values for FV and r.

3. 3.

   What does PV stand for in finance?

   • Past Value
   • Present Value
   • Paid Value

   Hint

   Think about its relationship with money and time.

4. 4.

   True or False: Present Value is always greater than Future Value.

   • True
   • False

   Hint

   Consider the principle of time value of money.

5. 5.

   You receive an offer to be paid ₹50,000 in 4 years. If the discount rate is 15%, what is the Present Value?

   Hint

   Make sure to calculate the power of (1 + r) accurately involving compounding.

6. 6.

   A company is expected to receive ₹1 million in 10 years. If its cost of capital is 10%, what is the Present Value?

   Hint

   Don't forget to use the exponent correctly in your calculation.