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The equations below show the discounted or present value of cash flows either one year or twenty years in the future. The first equation in
The equations below show the discounted or present value of cash flows either one year or twenty years in the future. The first equation in each set of three shows the discounted value when the interest rate (or cost of capital) equals 5%. The second equation in each set of three shows the discounted value for an interest rate that is controlled by the slider. The third equation compares the two discounted values. Change the slider and observe whether the discounted value of the one-year cash flow changes more or less quickly than the discounted value of the twenty-year cash flow. Year 1 Cash Flow PV of $100 due in 1 year @ r = 5.0% : : $95.24 PV of $100 due in 1 year @ r = 5.0% : $0 8-$95.24 1.05 1.050 $95.24-$95.24 = 0.0% Percentage change due to different r = $95.24-$95.24
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