Answer to Question #21192 in Economics of Enterprise for Angel Jones
If the payments are in the future, they are discounted to reflect the time value of money and other factors such as investment risk.If they are in the past, their value is correspondingly enhanced to reflect
that those payments have been (or could have been) earning interest in the
intervening time. Present value calculations are widely used in business and
economics to provide a means to compare cash flows at different times on a meaningful "like to like" basis
PV*(1+ 0,038)^5 = 25,000
PV= 25,000/(1 + 0,038)^5 = 20,746.9013.
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