3 factors affect the present value:

- The size of the future amount.
- The future date on which we receive (or pay the future amount.
- The capitalization interest.

The table shows how the present value (column 4) changes under 6 scenarios. The figure for one factor changes in each scenario, while the other factors remain unchanged. The top line in the table presents the opening figures.

Table 2.2 – The Factors Affecting the Present Value

Future Amount Charged | Future Date | Capitalization Interest | Amount of Present Value | |

(1) | (2) | (3) | (4) | |

$100k | 3 years from now | 10% | $75,131 | |

Scenario 1 | Increased (for example to $110k) | Unchanged | Unchanged | Increases ($82,645) |

Scenario 2 | Decreased (for example, to $90k) | Unchanged | Unchanged | Decreases (67,618) |

Scenario 3 | Unchanged | Further in future (4 years) | Unchanged | Decreases (68,301) |

Scenario 4 | Unchanged | Closer in future (2 years) | Unchanged | Increases (82,645) |

Scenario 5 | Unchanged | Unchanged | Increases (12%) | Decreases (71,178) |

Scenario 6 | Unchanged | Unchanged | Decreases (8%) | Increases (79,383) |