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Explanation: Present Value (PV) in finance represents the current worth of future cash flows, considering the time value of money. In a financial model, PV is calculated by discounting future cash flows back to their current value using a discount rate. This helps investors understand the current value of an investment or project’s expected cash flows.
Example: In a financial model, PV is calculated by discounting future cash flows at a specified rate. For instance, if an investment is expected to generate ₹10,000 annually for the next five years, and the discount rate is 10%, the PV would be calculated by discounting each cash flow back to its current value. The sum of these discounted cash flows provides the total present value of the investment, aiding investors in assessing its financial attractiveness.
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