Changes

This same equation can be rearranged to solve for the equivalence (or present value) of a future sum of money (such as a project net cash flow) received some time in the future. For example, a dollar that we expect to receive one, two, and three years hence is worth today [[cost::0.909 USD]], [[cost::0.826 USD]], and [[cost::0.751 USD]], respectively, if the time value of money is 10% per year compounded annually. Equation (2) expresses this principle of present value:

This same equation can be rearranged to solve for the equivalence (or present value) of a future sum of money (such as a project net cash flow) received some time in the future. For example, a dollar that we expect to receive one, two, and three years hence is worth today [[cost::0.909 USD]], [[cost::0.826 USD]], and [[cost::0.751 USD]], respectively, if the time value of money is 10% per year compounded annually. Equation (2) expresses this principle of present value:

:<math>\mathbf{Equation}</math>

:<math>\ P = {F \over(1 + i)^t}</math>

[[File:Thompson__the-time-value-of-money__Fig_1.png|thumb|{{figure_number|1}}Comparison of project cash flows and equivalent present value.]]  

[[File:Thompson__the-time-value-of-money__Fig_1.png|thumb|{{figure_number|1}}Comparison of project cash flows and equivalent present value.]]