COST ACCOUNTING
CAPITAL BUDGETING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The present value is usually calculated @premium from the future value
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The present value is usually calculated @discount from the future value
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Present value can be interpreted as the present value of a value that will be received or must be paid in the future.
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Present value can be interpreted as the value that will be received or must be paid in the future.
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Detailed explanation-1: -Present value (PV) is the current value of a future sum of money or stream of cash flows given a specified rate of return.
Detailed explanation-2: -Present value is the value right now of some amount of money in the future. For example, if you are promised $110 in one year, the present value is the current value of that $110 today.
Detailed explanation-3: -Is the present value always less than the future value? Yes, as long as interest rates are positive-and interest rates are always positive-the present value of a sum of money will always be less than its future value.
Detailed explanation-4: -Present value is what cash flow received in the future is worth today at a rate of interest called the “discount” rate. Here’s an easy way to look at present value. If you invest $1, 000 in a savings account today at a 2% annual interest rate, it will be worth $1, 020 at the end of one year ($1, 000 x 1.02).