Example - Calculate Present Value / Net Present Value

Background     A common Present Value (PV) / Net Present Value (NPV) calculation is to compute the current value of the remaining payments in a payment stream. To do so with TValue, you first enter a Loan Event with an Unknown Amount on the PV / NPV (valuation) Date, and then enter payments remaining after that date. When you are calculating a PV / NPV, only the cash flows that remain are used in the calculation. Those that have already occurred are not considered.

This method is useful for discounting a mortgage or trust deed. You can use these steps to determine what to pay for a note in order to receive a predetermined yield on the investment. These steps are also useful for determining the value of a structured settlement.

Facts     Fleury holds a note from Applegate calling for the payment of $5,000 per year for seven years beginning January 17, 2026. A final payment of $3,284.39 is due January 17, 2033. Fleury plans to sell his note to Lockwood on September 5, 2025. The note is to provide an annual yield of 15.5 percent to Lockwood.

Needed     The value of the note at September 5, 2025.

Settings     This example assumes Normal amortization (Compute Method) and a Year Length of 365 days (set in the Calculations group on the Configuration ribbon).

1. Enter the cash flow information as shown below. Note that only the payments remaining after the valuation date of September 5, 2015 are important.

   ** SCREEN SHOT HERE **

2. Press [F9], [Ctrl]+[U], or click Calculate from the Compute group to compute the value of the remaining payments on September 5, 20015.

Solution     The calculated Loan Amount of $23,529.24 represents the PV / NPV of the remaining payments on September 5, 2025. Fleury should sell the note to Lockwood for this amount to yield 15.5 percent.