Present value is the current value of an expected future stream of cash flow. The concept is simple. For example, assume that you aim to save $10,000 in a savings account five years from today and the interest rate is 3% per year. You would need to figure out how much is needed to invest today, or the present value. The formula for present value is PV = FV ÷ (1+r)^n; where FV is the future value, r is the interest rate and n is the number of periods. Using information from the above example, PV = 10,000÷(1+.03)^5, or $8,626.09, which is the amount you would need to invest today.
On Microsoft Excel, there is a built-in function to find the present value, given the required arguments. For example, if you expect to have $50,000 in your banking account 10 years from now, with the interest rate at 5%, you can figure out the amount that would be invested today to achieve this. Using Excel, enter "Year" in cell A1. In cell B1 enter the number of years, in this case 10. In cell A2, enter "Interest Rate" and enter 5% in cell B2. Now in cell A3, enter “Future Value” and $50,000 into cell B3. The built-in function PV can easily calculate the present value with the given information. Enter "Present Value" into cell A4, in cell B2 enter "=PV(B2, B1, 0, B3)." Since there are no intervening payments, 0 is used for the "pmt" argument. The present value is calculated to be ($30,695.66), since you would need to put this amount into your account; it is considered to be a cash outflow, and so shows as a negative. If the future value was shown as an outflow, then Excel will show the present value as an inflow.