Definition: What is Present Value (PV)?
Present Value (PV) is also called discount value. It is the financial formula which calculates the today invested money amount equal to the payment or cash amount received on a future date.
This is totally based on the time value of money principal which shows that the one dollar worth today is more than the worth of 1 dollar tomorrow.
The worth of today 1 dollar is more the tomorrow 1 dollar due to the 3 main reasons which are inflation, interest, and opportunity costs.
For the evaluation of potential investments, both investors and creditors use this ratio. PV also use by investors and creditors to measure the return on the current project.
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