Running head: CORPORATE FINANCE1Corporate FinanceNameInstitutionTIME VALUE OF MONEY2Corporate FinanceIntroductionThe Present Value (PV) is a formula used in Finance to calculate the present day value ofan amount that is received at a future date. The premise of the equation is that there is time valueof money. This formula takes in consideration that the present value of money received is betterthan receiving the same amount in a future date unless the money is increased. For example, it ispresumed that receiving $500 today than receiving the same amount in the next one year unlessthe value is increased to $509. In case the amount is increased, a formula is used to determine theprofitability and suitability of the presumed cash. This formula is known as the present valueformula (Peirson et al., 2014)The Present Value formula has a broad range of uses that may be applied to various areasof finance including corporate finance, banking finance, and investment finance. The formulahelps an individual or corporate and/or state to determine the exact amount of money that theycan put in an investment scheme so that they can realize a given amount at some rate within agiven period of time.During application of this formula, an economist or investor considers cash flow at period1(C1), rate of return (r) and period of time (n). Therefore the present value formula is given bythe relation;C1PV=(1+r) nThe formula shows that for any investment policy or sch ...
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