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I'm still having trouble grasping this concept: we refer to value, we mean the worth of...

I'm still having trouble grasping this concept: we refer to value, we mean the worth of the expected future cash flows restated in current dollars—that is, the present (current) value of the future cash flows. Present value of future confuses me. Can anyone break it down for me?

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Answer #1

Let's take an example to give you more clarity on this. Suppose you've an investment made today which will return you a fixed amount of sum, say $10000 after 10 years.

Now the value $10000 that you'll receive after 10 years won't be worth $10000 when you compare the same value as of today. By that what I mean is- the things that you can buy with $10000 in future will be much less than what you can buy with the same amount today. That means after 10 years, $10000 will not be as valuable as today. This is due to inflation and changing interest rate. That is why the term- Present Value of Future cashflow originated. The present value of future will give you as estimation of how much $10000 down the line in 10 years, is worth today.

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