The Present Value Factor

The Present Value factor that is also known as PV factor is a numerical figure having a value less than one that is used to derive the present value of the cash receipt that is due on the future date. The cash receipts which are due in the near future has a greater PV factor as compared to the cash receipts that are due on later date having smaller PV factor. The present value factor is also based on the concept of the time value of money just as the net present value. The concept of time value of money is that money received at present is much more valuable as compared to the money that is going to be received in near or far future as the money received now can be reinvested to get additional benefits.

Present Value Factor can be calculated with the help of following formula:-

P = (1/ (1+R) N)

Where

P = Present Value Factor

r = Interest rate

n = the number of periods over which the payment of the money is made

The present value factor is represented in the present value table where it is presented in a relationship among the grid of interest rates and time periods in which the payment is made.

Other Related Accounting Articles:

• Depreciation: Straight Line Biases
• What is an Inventory Change?
• How to calculate Efficiency
• Expense Ratio
• Standard Costing and Variance Analysis Formulas