Present value analysis is a method of calculating the value (in today's dollars) of money paid out or received in the future. This method is a tool that can be used by the buyer or seller of a business to determine if full value has been given or received. The value analysis approach involves 3 key questions:
1. How much are the dollars that flow in over a given time period worth today?
2. What risks are faced in waiting for the money?
3. How much will inflation erode the value of future payments?
For the seller, in all transactions involving payments into the future, the time value of money and the risks or uncertainty of receiving that money must be considered. When risks are greater, higher present value should be used.
1 comment:
hi dear you have written good just try to explain it more.
thanks
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