Enter either dates or number of days.



  Original Size  

25 Comments on “Present Value Calculator”

financial online calculator Join the conversation. Tell me what you think.
    • Care to elaborate? What do you mean by format exactly? The layout? More importantly, what do you think would make it betters?

      • Question: A solar system on a residence will save the Owner $3000 per year of electricity costs over the life of his 30 year mortgage. What is the present value of that savings?

    • What "discount rate" to use is up to the user. That is, there is no absolute right or wrong.

      When determining the discount rate, you could use several approaches. If you invest in the stock market, and for you, you earn on average 8% per year, you can use 8% for the discount rate to compare the present value with the pv of the stock market return.

      If you want to compare PV to something safer, you might use the US Treasury 10 year rate, which currently is at about 3.07%.

      If you care to say how the PV is going to be used or why you are calculating it, perhaps I’ll have a few more thoughts about what rate to use.

    • Thanks for the detail. That makes a difference. This is not the right calculator to use. Please use PV of an Annuity Calculator. This calculator is to be used when the user wants a PV of a single amount due sometime in the future. A lease, of course normally has monthly or at least periodic payments, which is what the recommended calculator will handle.

      Now, for the discount rate, assuming this lease is going to be purchased (or sold), the buyer and seller may want to use different discount rates.

      The buyer may feel that mutual funds and the lease have similar risks (mutual funds loss of value and the lessee not paying). In that case, the buyer would use their average mutual fund return rate, say 8%, to calculate the PV of the lease. After all, why would they pay more to purchase the lease if they can earn 8% in mutual funds? The buyer will always want to use the highest discount rate they can justify because the higher the discount rate, the lower the PV – or the lower the cost of the asset being purchased. In other words, the higher rate is conservative for the buyer.

      On the other hand, the seller may feel the tenants are reliable and the cash flow is safe. They’ll ask themselves why take a risk and put the money into the market where there is the risk of losing principal? In that case, the seller might just want to park the money in a 2% CD, so they’ll use 2% as their discount rate. Lower rates result in a higher PV. For the seller, the lower rate is more conservative. They’ll need to be paid a higher price so they can put the proceeds from the sale in a lower yielding CD to reduce the investment risk.

      Does this help?

    • Let me add one more thing since you might be saying to your self with these discount rates, no deal will ever happen. The seller will want too much and the buyer won’t be willing to pay.

      Of course, we know, deals do happen. The sell could just as easily think, I’m only making 8% on my initial investment, and now I have the opportunity to make 20% on my capital. So they’ll use 20% for the discount rate and any price the buyer is willing to pay above the PV using 20%, the seller will be happy.

      Or the buyer could think, I don’t invest in the market, and the best I can do is earn 2% in CDs. I need to make more. They decide they want to make at least 5%, so that’s the discount rate they use. Any amount the buyer pays that is less than the PV @ 5% is even a better deal than what the buyer was willing to pay.

      So an amount that is between the sellers 20% rate and the buyers 5% rate is a deal that makes both parties happy.

Comments, suggestions & questions welcomed...