 Financial Terms PV

# Definition of PV ## PV

See present value.

# Related Terms:

The net present value analysis of an asset if financed solely by equity
(present value of un-levered cash flows), plus the present value of any financing decisions (levered cash
flows). In other words, the various tax shields provided by the deductibility of interest and the benefits of
other investment tax credits are calculated separately. This analysis is often used for highly leveraged
transactions such as a leverage buy-out.

## Net present value (NPV)

The present value of the expected future cash flows minus the cost.

## Net present value (NPV)

A discounted cash flow technique used for investment appraisal that calculates the present value of future cash flows and deducts the initial capital investment.

## net present value (NPV)

Equals the present value (pv) of a capital investment
minus the initial amount of capital that is invested, or the entry cost
of the investment. A positive Npv signals an attractive capital investment
opportunity; a negative Npv means that the investment is substandard.

## Net Present Value (NPV)

The present value of all future cash inflows minus the present value
of all cash outflows

## net present value (NPV)

the difference between the present values of all cash inflows and outflows for an investment project

## net present value (NPV)

Present value of cash flows minus initial investment. ## Net Present Value (NPV) Method

A method of ranking investment proposals. Npv is equal to the present value of the future returns, discounted at the marginal cost of capital, minus the present value of the cost of the investment.

## NPV

See: Net present value.

## NPV

See net present value.

## NPV (net present value of cash flows)

Same as pv, but usually includes a subtraction for an initial cash outlay.

## NPV profile

A graph of Npv as a function of the discount rate.

## Present value of growth opportunities (NPV)

Net present value of investments the firm is expected to make
in the future.

## present value of growth opportunities (PVGO)

Net present value of a firm’s future investments.

## present value (PV)

This amount is calculated by discounting the future
cash returns from a capital investment. The discount rate usually is the
cost-of-capital rate for the business. If pv is more than the initial amount
of capital that has to be invested, the investment is attractive. If less,
then better investment alternatives should be found.

## Present Value (PV)

The dollar value at the present time (year zero) of a single cash
flow or a stream of future cash flows. The present value is
calculated by discounting the future cash flows. ## present value (PV)

the amount that one or more future cash
flows is worth currently, given a specified rate of interest

## present value (PV)

Value today of a future cash flow.

## Present Value (PV)

The value now of a future receipt or stream of receipts, calculated using a specified interest rate.

## Present Value (PV)

Are equity instruments that take no security against assets, have flexible terms of repayment and pay fixed or floating dividends.

## Price value of a basis point (PVBP)

Also called the dollar value of a basis point, a measure of the change in
the price of the bond if the required yield changes by one basis point.

## PV (present value of cash flows)

the value in today’s dollars of cash flows that occur in different time periods.
present value factor equal to the formula 1/(1 - r)n, where n is the number of years from the valuation date to the cash flow and r is the discount rate.
For business valuation, n should usually be midyear, i.e., n = 0.5, 1.5, . . .

## discounted cash flow (DCF)

Refers to a capital investment analysis technique
that discounts, or scales down, the future cash returns from an
investment based on the cost-of-capital rate for the business. In essence,
each future return is downsized to take into account the cost of capital
from the start of the investment until the future point in time when the
return is received. Present value (pv) is the amount resulting from discounting
the future returns. Present value is subtracted from the entry
cost of the investment to determine net present value (Npv). The net
present value is positive if the present value is more than the entry cost,
which signals that the investment would earn more than the cost-ofcapital
rate. If the entry cost is more than the present value, the net
present value is negative, which means that the investment would earn
less than the business’s cost-of-capital rate.

## Discretionary cash flow

Cash flow that is available after the funding of all positive Npv capital investment
projects; it is available for paying cash dividends, repurchasing common stock, retiring debt, and so on.

## Interest Factor

Numbers found in compound interest and annuity tables. Usually called the FVIF or pvIF.

## Internal rate of return

Dollar-weighted rate of return. Discount rate at which net present value (Npv)
investment is zero. The rate at which a bond's future cash flows, discounted back to today, equals its price.

## internal rate of return (IRR)

The precise discount rate that makes the
present value (pv) of the future cash returns from a capital investment
exactly equal to the initial amount of capital invested. If IRR is higher
than the company’s cost-of-capital rate, the investment is an attractive
opportunity; if less, the investment is substandard from the cost-ofcapital
point of view. ## internal rate of return (IRR)

Discount rate at which project Npv = 0.

## Net present value of future investments

The present value of the total sum of Npvs expected to result from
all of the firm's future investments.

## Net present value rule

An investment is worth making if it has a positive Npv. Projects with negative Npvs
should be rejected.

## Put-call parity relationship

The relationship between the price of a put and the price of a call on the same
underlying security with the same expiration date, which prevents arbitrage opportunities. Holding the stock
and buying a put will deliver the exact payoff as buying one call and investing the present value (pv) of the
exercise price. The call value equals C=S+P-pv(k).

## reinvestment assumption

an assumption made about the rates of return that will be earned by intermediate cash flows from a capital project; Npv and PI assume reinvestment at the discount rate; IRR assumes reinvestment at the IRR

## Separation theorem

The value of an investment to an individual is not dependent on consumption
preferences. All investors will want to accept or reject the same investment projects by using the Npv rule,
regardless of personal preference.

## weighted-average cost of capital

Weighted means that the proportions of
debt capital and equity capital of a business are used to calculate its
average cost of capital. This key benchmark rate depends on the interest
rate(s) on its debt and the ROE goal established by a business. This is a
return-on-capital rate and can be applied either on a before-tax basis or
an after-tax basis. A business should earn at least its weighted-average
rate on the capital invested in its assets. The weighted-average cost-ofcapital
rate is used as the discount rate to calculate the present value
(pv) of specific investments.