Intreduction to the present value of money under the concepts of the time value af money, You can determine the current, or present, value of cash receipt or payment that wil oocur at some specfied time in the future, given a specified rate of interest. This technique can be used to calculate the present value of a snge or a series ofNture receipts or payments. Jordan and Megan are walking after class between the lbrary and the best pizzeria near campus. Tivey re discussing Dr. Thbedeaux's latest nancial management lecture, which addressed the concept of present value and the process for calculating it. In ancic pation of tomerrow's quiz, they've decided to revies their lecture notes and the textbook materials and then gractce one or two problems. Complete the missing information in the conversetion that folows Round your final anewer to all computatione to two decimal places. However, if you compute any interest factors as en intermediate step in your calculetions, round them to four decimal places Megan So, what is a present elue, and why is it important to be able to calaulate it Jordan According to Dr. Thibodeaus, an asset's present ordiscounted value is the current value o the cash fiows that it will pay or recelve in the future Megan Walt! Can you give me an example of when it would be appropriate to calcalete a present value? Jordan Sure, but it might make more sense for you to idenbfy such a situation. So, tel me in which of the following two s manos you would use present value calculation, and then expen why that is Scenario 1: You would like to know how much you /d place on deposit to hie accumulated a certain amount of money by a specific future dete Scenaria 21 You would Iike to know how much a given amount depssited teday wi grow into by spoofic future date. Megan Ummm.t think scenario 1 is the sbuation that requires the calculaion of a present value The reason is that the amount to be placed on deposit is both Jerdan Very goodl So here's your nest question: How is the present value of a single amount calculated? Megan It can be calculated by rearranging the formulia that is used in the calculation of a future value. To Jordan Wait, weit, wait Couid you show me what you mean by writing it down Here sheet of paper, show me how to rearrargothe future value formula to solve for present velue Megan OK, frst, let's write down the equation used to calculate future value (n) The Calculation of a Future Value Neet, let's rearrange the equation to isolate the present value (PV) tems by dividing both sides of the equation by the unksown variable, the PV term, on the let-hand side of the equation Then, we'l simply rewite the equation to put the V-P So, does this make sense? We've rearranged the future value equation to solve for the present Abo, nobice that the present value interest factor is the factor. This means that you don't necesserily need two dferent ieterest factor tables for the sngle cash ow; you can make do using either simply the present value table or the future value table-sa long as you use it correcty of the future value interest Jordan So, do you think that we're ready to do a problem? Megan Surel Here's one from our homework You work and I' work, and we' see if our answers match Jerdan CK. Let's get sterted Sarah warts to reduce the cost of Vaduate school by starting D savings plan today. As sophomere, she has estimated that she has three years to accumulate the $30,000 that she needs to help cover some of her projected experses. The account she would open mould 63m5% per year compounded annually. So how much would she have to deposit today to accumulate $30,000 in three years? Or, stated diMerently, hat is the the nearest whole dollar) value of $30,0007 (Note: Round your answer to I think thet Serah would have to deposit at the end of three years Is that what you got when you solved the problem s0 that she would heve the desired $30,000 Megan Yes it is! I think weve got a g0od start on getting ready for Dr. Thibodeaux's next quiz