What is 'Present Value  PV'
Present value (PV) is the current worth of a future sum of money or stream of cash flows given a specified rate of return. Future cash flows are discounted at the discount rate, and the higher the discount rate, the lower the present value of the future cash flows. Determining the appropriate discount rate is the key to properly valuing future cash flows, whether they be earnings or obligations.
BREAKING DOWN 'Present Value  PV'
PV is also referred to as the "discounted value." The basis is that receiving $1,000 now is worth more than $1,000 five years from now, because if you got the money now, you could invest it and receive an additional return over the five years.
The calculation of discounted or present value is extremely important in many financial calculations. For example, net present value, bond yields, spot rates, and pension obligations all rely on the principle of discounted or present value. Learning how to use a financial calculator to make present value calculations can help you decide whether you should accept a cash rebate, accept 0% financing on the purchase of a car or pay points on a mortgage.
Future Value
Present value is used in reference to future value and the comparison of present value with future value best illustrates the principle of time value of money and the need for charging or paying additional riskbased interest rates. Simply put, the money today is worth more than the same money tomorrow because the passage of time has financial value attached to it and rewards or costs are demanded for owning or using today's money. Future value can relate to future investment cash inflows from investing today's money or future payment outflows from borrowing today's money.
Discount Rate
The discount rate is the sum of the time value and a relevant interest rate that mathematically increases future value in nominal or absolute term. Conversely, the discount rate is used to work out future value in terms of present value, allowing a capital provider or user to settle on the fair amount of any future earnings or obligations in relation to the present value of the capital. The word "discount" refers to future value being discounted to present value, as future value is inflated after adding on to it the time value and associated interest.
Present Value
Present value provides a basis for assessing the fairness of any future financial benefits or liabilities. For example, a future cash rebate discounted to present value may or may not be worth having a potentially higher purchase price. The same financial calculation applies to 0% financing when buying a car. Paying some interest instead on a lower sticker price may work out better for the buyer than paying zero interest on a higher sticker price. Paying mortgage points now in exchange for lower mortgage payments later makes sense only if the present value of the future mortgage savings is greater than the mortgage points paid today.

Discounted Future Earnings
Discounted future earnings is a method of valuation used to estimate ... 
Adjusted Present Value  APV
The Net Present Value (NPV) of a project if financed solely by ... 
Terminal Value  TV
The value of a bond at maturity, or of an asset at a specified, ... 
Net Present Value Rule
A rule stating that an investment should be accepted if its net ... 
Valuation
The process of determining the current worth of an asset or company. ... 
Net Present Value Of Growth Opportunities ...
Net present value of growth opportunities is a calculation of ...

Financial Advisor
A Guide on the RiskAdjusted Discount Rate
When a project or investment faces higher amounts of risk or uncertainty, it may be appropriate to utilize the riskadjusted discount rate. 
Investing
Understanding the Time Value of Money
Find out why time really is money by learning to calculate present and future value. 
Investing
Using the Dividend Discount Model
The dividend discount model is a way of applying net present value analysis to estimate the future dividends a stock will pay. Those dividends are then discounted back to their present value. ... 
Investing
Why Stocks Outperform Bonds
Why have stocks historically produced higher returns than bonds? It's all a matter of risk. 
Investing
Valuing Firms Using Present Value of Free Cash Flows
When trying to evaluate a company, it always comes down to determining the value of the free cash flows and discounting them to today. 
Investing
Top 3 Pitfalls Of Discounted Cash Flow Analysis
The DCF method can be difficult to apply to reallife valuations. Find out where it comes up short. 
Personal Finance
Mortgage Points: What's the Point?
Learn how to pay less for your home in the long run, or save in the short run. 
Investing
Why Do Global Markets Freak Out?
Understanding what stocks are will take the mystery out of their movements.

What are the disadvantages of using net present value as an investment criterion?
While net present value (NPV) calculations are useful when you are valuing investment opportunities, the process is by no ... Read Answer >> 
Why the time value of money (TVM) matters to investors
Understand why the time value of money is an important concept for investors. Learn when present value and future value calculations ... Read Answer >> 
What is the difference between the cost of capital and the discount rate?
Learn about the differences between the cost of capital and the discount rate as they relate to estimating a required return ... Read Answer >> 
How do I calculate free, discounted and operational cash flow in Excel?
Take a quick look at how you can calculate a company's operating cash flow, free cash flow and discounted cash flows using ... Read Answer >> 
How is perpetuity used in determining the intrinsic value of a stock?
Learn about the basics of a perpetuity, its valuation, how it is calculated and how it is used when evaluating the intrinsic ... Read Answer >>