How to calculate present value factors?
The present value factor formula is below, and while it may look daunting at first glance, it is easy to remember after you work through it a few times! In the formula, rate represents the cost of capital or the discount rate, while periods equals the number of years.
Present Value Factor Formula Example:
Let’s say that the question tells you the cost of capital is 5% and you need to calculate the present value of a cash inflow 5 years from now? Using the formula, the rate would be 5% and periods would be 5 years. The 3 steps to calculating are as follows:
Step 1) Start by taking 1+5%, which equals 1.05
Step 2) Take 1.05^5 = 1.276282
Step 3) Divide 1 by 1.276282, which = 0.783526
Excel PV Factor Template
Utilize this free Excel template for calculating the present value using any discount rate or cost of capital. This template also includes a column to enter undiscounted annual cash flows to arrive at discounted cash flows.
Back To All Questions
You might also be interested in...
-
CECL Excel Workbook
If you would like to use the Excel workbook that was used to create the Universal CPA lecture on CECL for debt securities, please click the link below to download the Excel workbook: CECL Calculation workbook (Universal CPA Review)
-
Journal Entry for Direct Materials Variance
Journal Entry for Direct Materials Variance In the current year, Mission Burrito budgeted 6,000 pounds of production and actually used 4,000 pounds. Material cost was budgeted for $5 per pound and the actual cost was $8 per pound. What would the debit or credit to the direct material efficiency variance account be for the current...
-
Understanding Variance Analysis
Variance Analysis Variance analysis is a method for companies to compare its actual performance vs its budgeted amount for that cost measurement (related to the flexible budget). The differences between the standard (budgeted) amount of cost and the actual amount that the organization incurs is referred to as a variance. By analyzing variances, the company...
CECL Excel Workbook
If you would like to use the Excel workbook that was used to create the Universal CPA lecture on CECL for debt securities, please click the link below to download the Excel workbook: CECL Calculation workbook (Universal CPA Review)
Journal Entry for Direct Materials Variance
Journal Entry for Direct Materials Variance In the current year, Mission Burrito budgeted 6,000 pounds of production and actually used 4,000 pounds. Material cost was budgeted for $5 per pound and the actual cost was $8 per pound. What would the debit or credit to the direct material efficiency variance account be for the current...
Understanding Variance Analysis
Variance Analysis Variance analysis is a method for companies to compare its actual performance vs its budgeted amount for that cost measurement (related to the flexible budget). The differences between the standard (budgeted) amount of cost and the actual amount that the organization incurs is referred to as a variance. By analyzing variances, the company...
