Use the Present Value of Cash Flows Calculator to calculate the present value of fixed or changing cash flows to allow insight into future profits based on current costs and known interest rates.
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How would you like to know if the cash flow you are expecting to receive in the near future would be worth as much as it is today? Present value of cash flows is the method to calculate the current value of funds based on a future value.
This method is based on the time value of money. It means that the money you are expecting in a year's time could be of less value, had you received it today; because the money in hand today can be invested to earn interest.
The present value of cash flow uses a discounting formula to calculate the present value of future cash flows at a specified rate of return. This rate of return is discounted from the future cash flows. This means the higher the discount rate the lower the present value of future cash flows.
Go for an automatic tool to calculate PV of cash flows if you want to be sure that your calculations are quick and precise. A calculator will give you a detailed report about the present value of your future cash flows. These cash flows can be fixed or changing. Factors that are important to achieve an accurate result on a calculator are:
According to the inputs based on the above criteria, the calculator will provide you with a table that will contain:
The most important factor that has an impact on present value is interest or discount rate. To give an example, there can be two situations, first, you are expecting a cash flow of 1k per month after 1 year for 6 months, or you want to receive a lump sum of 5.5k now. The present value will depend on the expected rate of return.
Generally, people tend to go for the first option as the money invested right now can earn interest. If the interest rate is not high enough to match the total loss occurred right now, it would be a wise decision to opt for the first option.
Money not spent today can lose its value in the future when calculated by applying the rate of inflation. Purchasing a product today could be cheaper than buying the same product in the future as inflation may cause the prices to go higher thus decreasing the purchasing power of your money.
The method that is used for present value of future cash flows uses discounting that could be expected interest rate, inflation rate or the combination of both.
To summarize, the present value of cash flows helps us with financial decision making. The calculator has been designed in a way to be useful for both individuals and corporations. It is easy to use and saves a lot of time by avoiding manual calculations. It not only helps you in evaluating the present value of cash flow, but also helps you predict potential outcomes of your investments.
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