Present Value and Investment Decisions Firms purchase capital goods to increase their future output and income. Income earned in the future is often evaluated in terms of its present value . The present value of future income is the value of having this future income today. Present value formula. The present value of receiving $20,000 one year from now can be calculated using the present value formula. The formula for finding the present value of X dollars received t years from now at the current market interest rate r is For example, if X = $20,000, t = 1, and r = .05, the present value of $20,000 received one year from now is 20,000/(1.05) 1 = $19,047.62. The present value of $20,000 received two years from now at an interest rate of 5% is found by setting X = $20,000, t = 2, and r = .05. The present value in this case is $20,000/(1.05)
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5%, Value investing, $20,000, $18,140.59, $19,047.62, $20,000 one