What is present value?
Present value (PV) is the current value of a future sum of money or stream of cash flows, discounted at an appropriate rate to reflect the time value of money. The formula for a single future sum is PV = FV ÷ (1 + r)^n.
Present-value analysis is foundational to DCF (discounted cash flow) valuation, lease vs. buy decisions, evaluating earn-outs and structuring deferred consideration in M&A. The chosen discount rate (WACC, hurdle rate, cost of equity) significantly affects the PV outcome.