The term present value means an evaluation of future flows of receipts at the current time. It must be distinguished from the related, and similar, term “net present value”. Both terms estimate the current value of future income using a discount rate to take into consideration the time value of money. The terms differ in the method used to produce the valuation. A net present value calculation takes into account the outlays required required initially and hence is a net amount. The present value method only takes into account the receipts.
Present Value (Economics Term)
The worth of a future stream of returns or costs in terms of money paid immediately (or at some designated date). (Differs from Net Present Value.) A dollar available at some date in the future is worth less than a dollar available today because the latter could be invested at interest in the interim. In calculating present value, prevailing interest rates provide the basis for converting future amounts into their “money now” equivalents. (See also Discount Rate; Net Present Value.)