nykyarvo

Nykyarvo, in English present value, is the current worth of a sequence of future cash flows, calculated by discounting each flow back to today. It reflects the time value of money: a euro received tomorrow is worth less today than a euro received now, once risk and opportunity costs are considered.

Mathematically, the present value is determined by PV = sum_t CF_t / (1 + r)^t, where CF_t is the cash flow at period t and r is the per-period discount rate. If cash flows occur at the beginning of a period, the exponent is adjusted accordingly. Continuous discounting uses PV = sum_t CF_t e^{-rt}.

Nykyarvo is widely used in investment analysis and corporate finance to assess projects and assets. Net present value (NPV) is the sum of the present values of all expected cash flows minus the initial outlay. A project is typically accepted if NPV > 0 at the chosen discount rate.

Choosing the discount rate is critical. It should reflect the opportunity cost of capital, risk, and inflation. Real discounts remove expected inflation; nominal rates include it. The rate affects PV and NPV strongly; small changes can reverse decisions.

Limitations include uncertainty in estimating future cash flows and the subjective nature of the discount rate. Present value assumes cash flows occur as projected and that risk remains constant. It is most effective when used with sensitivity analysis and scenario planning; common applications include bond pricing, capital budgeting, and valuing financial assets.