PV, FV, Discounting & NPV (Don’t Sleep on This!)
Last article I discussed how $100 today explodes to thousands later.
Today we go deeper; discussing Future Value (FV), Present Value (PV), discounting, and the biggest one, Net Present Value (NPV).
First: Future Value (FV) — that’s your money growing forward.
Formula’s simple: FV = PV × (1 + r)^t
$100 today at 7% for 10 years? FV ≈ $197
But what if someone promises you $197 in 10 years? Is it worth $100 today?
Nope, that’s where Present Value (PV) and discounting come in.
Discounting is the reverse; basically we shrink future money back to today’s dollars because of opportunity cost and risk.
PV = FV / (1 + r)^t
That $197 in 10 years at 7%? PV ≈ $100 today.
So discounting really helps you compare cash flows at different times.
$1,000 today vs. $1,000 in 5 years?
The future one is worth way less now, maybe only $700–800 depending on rate.
Now the big one: Net Present Value (NPV).
NPV = PV of all future cash inflows minus PV of outflows (like your initial investment).
Real student example: You pay $5,000 today for a certification that gets you $2,000 extra salary each year for 4 years. At 7% discount rate…
If NPV > 0 → worth it (money-maker).
If NPV < 0 → skip it (you lose in today’s dollars).
Bottom line: Always discount future cash flows, time literally discounts money so act early!
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