What is the present value (PV) of an investment?
If total revenue function is equal TR=5e-0.1t, then, total revenue two years from now equals
Find the internal rate of return of an investment project which requires an initial outlay of 800 and will produce a return of 2000 at the end of 5 years.Then,is it worth it if the capital could invested elsewhere at 15% compounded annually
P = Po(1+r)^5 = 2,000
800(1+r)^5 = 2000
(1+r)^5 = 2.5
1+r = 1.20
r = 0.20 = 20%.
The present value (PV) of an investment is the current worth of a future sum of money, determined by discounting it using an appropriate interest rate. It represents the amount you would need to invest today in order to achieve a specific desired future value.
To calculate the present value, you will need three pieces of information: the future value (FV) of the investment, the time period (n) until the future value is received, and the rate of return (r) expected from the investment.
The formula for present value is: PV = FV / (1 + r)^n
Here's how you can calculate the present value step-by-step:
1. Determine the future value of the investment (FV).
2. Decide on the time period (n) until you receive the future value.
3. Determine the expected rate of return (r) from the investment.
4. Plug these values into the formula: PV = FV / (1 + r)^n
5. Calculate the result using a calculator or spreadsheet software.
By calculating the present value of an investment, you can assess its attractiveness and compare it to other investment opportunities. It helps in evaluating the profitability and risk associated with an investment, allowing you to make informed financial decisions.