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Definition and Examples of

Present Value

Explanation: Present value is the current value of a future sum of money or stream of cash flows, given a specified rate of return. This concept is used in finance to compare the value of money now with the value of money in the future.

Example: When evaluating whether to invest in new equipment, your auto repair shop calculates the present value of expected future cash flows from the investment.

Potential Issues: Incorrect calculations of present value can lead to poor investment decisions, as it may result in overvaluing or undervaluing future returns.

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