Present Value (PV) /Discounted Cash Flow (OCF)
General Procedure ·The present value or the discounted cash flow procedure recognizes that cash now streams at different time periods differ in value and can be compared only when they are expressed in terms ofa common denominator ..that is, present values. It. thus, takes into account the time value of money. In this method, all cash flows arc expressed in terms of their present values. The procedure to determine present value is comprehensively covered in Chapter 2. The present value of the cash flows in Example 10.6 are illustrated in Table 10.11.