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Present Value Factor

   Also found in: Acronyms 0.01 sec.
Present value factor
Factor used to calculate an estimate of the present value of an amount to be received in a future period. If the opportunity cost of funds is 10% over next year, the factor is [1/(1 + 0.10)].

Present Value Factor
An estimate of the present value of future cash flow for a project.


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The impact of these changes to terminal value estimate methodology is far less significant if the appraiser is working on a long-term analysis because the present value factor at the end of a twenty-, thirty-, or forty-year holding period is minimal.
We can compute the break-even contribution margin (BE--earning the target 15% on the investment) such that the project's net present value is zero for this project as follows: 0 = {[(BE x 150,000)-2,000,000] x present value annuity factor @15% for 4 years} - 10,000,000 - (5,000,000 x present value factor @ 15% in 4 years) Solving this equation within the indicated factor implies that BE = $43.
PRESENT VALUATION WITH CERTAIN AND UNCERTAIN CASH FLOWS ASSET A B C CERTAIN CERTAIN UNCERTAIN TOMORROW 5 YEARS TOMORROW Contractual 1000 1000 1000 Cash flows Adjustments for expectations -200 Expected cash flows 1000 1000 800 Risk premium adjustment -40 Adjusted cash flows 1000 1000 760 Present value factor at 4% 1.
 
 
 
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