The present value of a cash flow will always be less than the future dollar amount of the cash flow.
The present value is the value of future cash flows discounted by the discount rate to today's value.
Discounting converts a future value to an equivalent value received today. Discounting measures the relative value of a series of future cash flows to a present value.
For example, if $500 is to be received in ten years, with a discount rate of 5%, its present value will be $307 ($500 x 0.614).
Thus, the present value of a cash flow will always be less than the future dollar amount of the cash flow.
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The present value of a cash flow will always be less than the future dollar amount of the cash flow.
The present value is usually less than the future value because money has the potential to earn interest, a factor called the time value of money, except for zero or negative interest rate periods, when the present value will be equal to or greater than that. future value.
The discount converts future value into the same amount received today. The discount rate measures the relative value of the future cash flow statement.
Thus,The present value of a cash flow will always be less than the future dollar amount of the cash flow.
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