Revenue from a project is expected to be $6000 per year in real terms (i.e. an identical project would earn $6000 in revenue today).  If the expected inflation rate is 3.4%, what is the nominal value of the annual revenue (the actual number of dollars received) 7 years from now? a. $7840 b. $7582 c. $8107 d. $7333

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A:

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Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.