Question

What is the difference between future value and present value?

What data do you need to do a future value or present value calculation?

How could business owners use this information?(Be specific)

Answer 1

Answer:

Future value : Future value is the amount that we want to receive in future after a desired time or at a specified amount. Future value of a annuity means the amount to which the growth in our current investments.It is Based on a compounding.

Present value: Present value is the value of the income at present that is to be received in the future. Present value is the amount that we need to invest today to generate the desired amount in future. It is based on a discounting.

Data that is needed to do a Future value calculation :

• Time period after which we want to receive amount.
• The rate of interest that is to be received on the interest.
• The current value of investment that is being made.

Data that is used for the present value calculation :

• Value of the amounts that we are received in future.
• The rate of interest used for the discounting.
• The period at which the amount is received in future.

The Business owners can use the information as

In case of present value calculation they can discount the amount that is to be received in the future. The basis of the discounted rates for compare the present value of cash inflows with the present value of cash outflows.

In case of future value calculation they can compound the data that with the help of given rate and the time period and they can know the value of his current investment that is to be received in future.