What is the formula for the present value (PV) of the projection period?

The formula for calculating the present value (PV) of a sum of money to be received in the future is based on the concept of discounting future cash flows back to their value in today's terms. The correct formula is represented by dividing the future value (FV) by the expression (1+r)^N. In this formula:

• FV refers to the amount of money that is expected to be received in the future.

• The term r represents the discount rate, which reflects the opportunity cost of capital or the risk associated with the future cash flow.

• N indicates the number of periods until the cash flow is received.

This formula effectively accounts for the time value of money, illustrating how a specific amount of money today is worth more than the same amount in the future due to its potential earning capacity. By using the discount rate, the formula reflects the decrease in value of future money as you move further into the future, thus giving a proper measure of its present worth.

This approach is essential in financial modeling and valuation, as it allows analysts and investors to assess the worth of future cash flows relative to the present, which is crucial in investment decision-making and project evaluations.