Cash flow: The incoming and outgoing of cash in a business is termed as cash flow. Cash flow is used to judge the quality of company’s income. Present value : Present value is the current value of a future sum of money. To calculate present value, the future cash flows are discounted at the discount rate. Simply, to find present value of a future sum of money, one has to find out how much amount has to be invested today to receive the same amount in future. Future Value : The future value is that value of an investment which will be realizable in future. When amount is invested today at a specific rate, its future value will be more than the present value of money invested. To determine: The terms required to compute a cash flow’s present value or future value.

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Chapter 3, Problem 8CC

Summary Introduction

Cash flow: The incoming and outgoing of cash in a business is termed as cash flow. Cash flow is used to judge the quality of company’s income.

Present value: Present value is the current value of a future sum of money. To calculate present value, the future cash flows are discounted at the discount rate. Simply, to find present value of a future sum of money, one has to find out how much amount has to be invested today to receive the same amount in future.

Future Value: The future value is that value of an investment which will be realizable in future. When amount is invested today at a specific rate, its future value will be more than the present value of money invested.

To determine:

The terms required to compute a cash flow’s present value or future value.

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