Present value calculator is a tool that benefits you in estimating the existing value of money as compared to a different value in future. It is also known as present discounted value, a quite significant concept in the field of finance and accounting. In finance, it is used for pricing things, including: bonds, stocks, loans and many more.
The world’s economy is established on the basis of future value estimations. A currency may have more worth right now than a few years later because it can be invested to receive a return. It also helps to decide the amount you need to invest now in order to achieve a certain future aim, for example when purchasing a car or a farmhouse.
Are you anticipating to earn a lump sum of cash in the near future?
At present, what is the worth of that money in dollars?
Future money must be forecasted in current value terms, in order to avoid improbable optimism and to make comparisons regarding business investment alternatives. Our present value calculator will make the math easy and assist you in your business decisions.
In this article, you will learn more about the concepts, applications and estimation of this financial measure.
Net Present Value (NPV)
It is the worth of your upcoming currency in today’s dollars. Because a dollar today will not be the same tomorrow. The buying power of the money will reduce with inflation (increase in the price of commodities) and on the other hand this power will increase with deflation (a reduction in prices).
Moreover, there is an indirect interest value to the principal sum over time that enhances its worth in the coming years. It discounts (reduces) its value currently in relation to any future payment.
Since, money changes its purchasing power over time. All the calculations pertaining to capital must be carried today, in order to have precise comparisons between competing investment substitutes. Present value is considered the standard estimate in this decision making process.
Entrepreneurs uses NPV for managing assets expenses and routine business development. Likewise, smart capital builders also rely on it for investments and financial planning. If you are aspiring to become a business tycoon, you must make sound business decisions. Don’t worry! Our Present value calculator will help you to reach that goal.
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In the next section of this article, we will demonstrate the working of this tool, using an example to understand the principle behind this estimation.
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An example of PV calculations
Assume that a person owes you $12,000 and he promises to return the sum after a period of four years. Now we compute the current value of that future $12,000 with 8% inflation using the discount rate calculator. The discounted present worth of a $12,000 sum to be paid in 4 years is approximately equal to $8,820 currently at a discount rate of 8%.
It is imperative to recognize that the three most useful constituents of this value are time, rate of return, and the projected future sum of money. The formula is expressed as follows:
PV- represents the current worth, FV - is the sum of cash that is yet to come.
r - The rate of return, Inflation rate, or discount rate.
n - Signifies the total years.
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How to find Present value?
In the previous section we discussed the important components now let’s consider an example:
- Assume the FV to be $200.
- The intermittent rate of interest be 6%.
- The number of years be 3 years.
- Now put the required values in the formula.
In this particular example it will be: 200$/ (1+0.06)3 = 167.92$
Now you know all the basic concepts and formulas needed for its calculation, or you can use our present value calculator. This smart online gizmo is specifically designed to compute the above said estimation in fractions of seconds with precision. All you need to do is enter the particular fields:
The prospected future worth, Periodic rate of interest or inflation and number of years.
That’s it, leave the rest on our trusted tool. We hope this article and our present value calculator will prove beneficial in assisting you regarding the financial decisions. Ultimately, saving you money and making you a smart business investor. You might be interested in our other financial tools like Future value calculator.
Related: Calculations of compound annual growth rate is very using. You can simply use cagr calculator and it will calculate compound annual growth rate instantly.