Finance

Factors Affecting the Present Value - Summary

3 factors affect the present value:

  1. The size of the future amount.
  2. The future date on which we receive (or pay the future amount.
  3. The capitalization interest.

The table shows how the present value (column 4) changes under 6 scenarios. The figure for one factor changes in each scenario, while the other factors remain unchanged. The top line in the table presents the opening figures.

Table 2.2 - The Factors Affecting the Present Value

Future Amount Charged Future Date Capitalization Interest Amount of Present Value
(1) (2) (3) (4)
$100k 3 years from now 10% $75,131
Scenario 1 Increased (for example to $110k) Unchanged Unchanged Increases ($82,645)
Scenario 2 Decreased (for example, to $90k) Unchanged Unchanged Decreases (67,618)
Scenario 3 Unchanged Further in future (4 years) Unchanged Decreases (68,301)
Scenario 4 Unchanged Closer in future (2 years) Unchanged Increases (82,645)
Scenario 5 Unchanged Unchanged Increases (12%) Decreases (71,178)
Scenario 6 Unchanged Unchanged Decreases (8%) Increases (79,383)
Factors Affecting the Present Value - Summary594Factors Affecting the Present Value - Summary