Present Worth, PW(i)
The present worth, PW(i), of a cash-flow stream shows how much that future stream is worth (“is equivalent to”) right now at interest rate, i. The reference time frame for PW(i) is today, or, more precisely, the beginning of the first period (the end of period 0) of the cash-flow stream. Present worth is also called net present value, or NPV. The present worth is the answer to the question, “How much is this cash-flow stream worth today?”
The “present” can be any arbitrary point in time as appropriate for the decision being studied. In 1999, we could have talked about the PW(i) of a cash-flow stream that's planned to begin in 2009 and includes cash-flow instances through 2011.
The formula for calculating the PW(i) of a cash-flow ...
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