Also called the Present Value of One or PV Factor, the Present Value Factor is a formula used to calculate the Present Value of 1 unit n number of periods into the future. The PV Factor is equal to 1 ÷ (1 +i)^n where i is the rate (e.g. interest rate or discount rate) and n is the number of periods.
So for example at a 12% discount rate, $1 USD received five years from now is equal to 1 ÷ (1 + 12%)^5 or $0.5674 USD today. The PV Factor can be used to calculate the Present Value of a future stream of cash flows by multiplying each period’s cash flow by the given PV Factor for that year and then summing the resulting values.« Back to Glossary Index