The Present Value of $1 (also called the Reversion Factor) is the current value of a lump sum to be received at some time in the future. The lump sum is discounted to an equivalent current value by a discount rate based on the premise that a lump sum received sooner is more valuable than a lump sum received later.
The Present Value of $1 factor is generally column 4 of the compound interest table. It may be labeled Present Worth of $1.
To calculate the amount that must be deposited in the sinking fund, multiply the amount of the desired future amount by the factor from the appropriate compound interest table.
Roger will receive $10,000 at the end of 5 years. Assuming a discount rate of 7%, what is the current value of the lump sum to be received in the future?
$10,000 is the lump sum to be received in the future. Using the discount rate of 7% estimates the today's value of the lump sum.
An Appraisal Application:
Roger owns land that he believes will be worth $100,000 in 5 years. Assuming a discount rate of 6%, what is the value of the land now.