How to use the Present Value Calculator
- Enter the future lump sum you expect to receive.
- Add a recurring annual cash flow if the payoff arrives as a stream.
- Enter a discount rate reflecting your opportunity cost or required return.
- Enter the number of years, then read the combined present value.
How the calculation works
Discounting is compounding in reverse: a dollar arriving in year n is worth 1/(1+r)ⁿ today because that is what you would need to invest now to end up with it. The discount rate is therefore an opportunity cost, not a prediction.
Rate choice dominates the answer at long horizons. At 20 years, moving from 5% to 8% cuts present value by nearly 45%, which is why valuation disputes are usually arguments about the discount rate rather than about the cash flows.
For a lottery lump-sum-versus-annuity decision or a structured settlement offer, use the after-tax return you could realistically earn as the discount rate. Using an aspirational rate makes the lump sum look artificially attractive.
PV = FV ÷ (1 + r)ⁿ + PMT × [1 − (1 + r)⁻ⁿ] ÷ rSource: Brealey, Myers & Allen, Principles of Corporate Finance, discounted cash flow chapter.
Worked example
$100,000 due in 15 years at a 6% discount rate.
- The discount factor is 1 ÷ 1.06¹⁵ ≈ 0.4173.
- $100,000 × 0.4173 ≈ $41,730.
Worth about $41,730 today — so any offer above that beats waiting, at a 6% opportunity cost.
Frequently asked questions
What discount rate should I use?+
Your realistic alternative return. Households often use 4–6%; companies use their weighted average cost of capital.
Should I adjust for inflation?+
Either discount nominal cash flows at a nominal rate or real cash flows at a real rate — never mix the two.
Take the lottery lump sum or annuity?+
Compare the lump sum against the annuity's present value at your after-tax achievable return, then weigh the behavioural risk of holding a large sum.
Last reviewed September 1, 2026. We review this page whenever the underlying formula, tax year, published rate or standard changes.