15.2 Present Value LO 2
Since physical capital is durable, it delivers benefits to its owners over
many years. As a result, firms need to evaluate the stream of future
benefits produced by capital.
Present value is the value today of any stream of future sums; it is
computed by discounting the future sums using the rate of interest.
The present value of X receivable in t years’ time when the interest
rate is i per year isPV = X
( 1 +i)t