Present Value
The concept of present value is the reverse of the concept of future value. Instead of trying to figure out what something will be worth in the future, present value calculates what the value of a future amount is today. This comes in handy in planning for the future, since many times clients or companies will decide that they need a certain amount in the future to meet certain goals or financial commitments, which in turn brings up the question of how much they would have to set aside today (the present value) to reach those goals. Likewise, when you are looking at investments as potential choices for investing a client’s money, being able to analyze the present value of future amounts will help you compare apples to apples (e.g., would you rather invest in a company that has $1 million of cash in the bank or one that will receive $2 million in cash from a government contract seven years from now).
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