Finance - Present Value (PV) - Example

If a business has to pay $100 one year from now. If the business is able to invest money at a 5 percent annual return, the business could invest $95.24 today and get back $100 in a year to pay that bill. Therefore, the “present value” to the business -- the value in today’s dollars -- of that $100 future cost is actually only $95.24.