Present Value of Investment:

Any cash flow that is to be received in the future needs to be discounted to present value in accordance with the concept of time value of money. Since money has earnings power, the true worth of future cash flow can only be determined after discounting back to present value at an appropriate discount rate. For the same future cash flow, higher the discount rate, lower is the present value.

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Given -

• Future Value (FV) = \$318,102
• Time (t) = 12 Years
• Discount Rate = 7% = 0.07

The formula to calculate the present value is as follows -

• Present Value = {eq}FV / ( 1 + r ) ^ t {/eq}
• Present Value = {eq}318102 / ( 1 + 0.07 ) ^ 12 {/eq}
• Present Value = {eq}141,241.09 {/eq}