To calculate the present value of any cash flow, you need the formula below: Present value = Expected Cash Flow ÷ (1+Discount Rate)^Number of periods Thus, for year one, the math would look like ...

Net present value and the profitability index are helpful tools that allow investors and companies make decisions about where to allocate their money.

How to calculate the present value of an ordinary annuity Present value of an annuity refers to how much money must be invested today in order to guarantee the payout you want in the future.