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Present Value Factor Formula (Table of Contents)
Present value factor deals with the idea of time value for money by trying to estimate the current value per dollar to be received at a future date. The underlying idea is that any amount received today is of greater value than if that same amount were to be received on a future date since it can be reinvested to increase the overall earnings.
Present Value factor Formula
Derivation of Present Value Factor Formula
This is the original formula for PV factor from which the formula we have presented above is derived.
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Examples of Present Value Factor Formula
Suppose, if someone were to receive $1000 after 2 years, calculated with a rate of return of 5%. Now, the term or number of periods and the rate of return can be used to calculate the PV factor for this sum of money with the help of the formula described above.
PV factor = 1 / (1+r)n = 1/(1+0.05)2 = 0.907
Now, multiplying the sum of $1000 to be received in future by this PV factor, we get:
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$1000 x 0.907 = $907
This means that $907 is the current equivalent of the sum of $1000 to be received after 2 years with a rate of return of 5% and it could be possible to reinvest this sum of $907 somewhere else to receive greater returns.
Explanation of PV factor Formula
Present value factor formula is centered on the idea of assessing if an ongoing investment can be encashed and utilized better to enhance the final outcome as compared to an original outcome which can be had with the current investment. With a view to estimating what would be the current value of a certain sum to be received on a future date, we need two factors, namely, the time interval after which the sum is to be received and the rate of return for the same. These two factors can then be used to calculate present value factor for any given sum to be received on any given future date.
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This PV factor would help calculate the current equivalent amount for the future sum in terms of time value for money and then it is used to calculate how better returns can be achieved by reinvesting this current equivalent in a relatively better avenue.
Use of Present Value Factor Formula
This concept of PV factor can be of great use in estimating if a current investment would be worth continuing with, or a portion of it can be received today and reinvested to receive greater returns. If one finds that present value of the sum to be received in the future can yield higher returns in an alternative investment, it shed further light on the value of a current investment and any viable alternatives. This would potentially be of great help in making better-informed investment decisions.
Present Value Factor Calculator
You can use the following Present Value Factor Calculator.
Present Value Factor Formula in Excel (with excel template)
Let us now do the same example above in Excel. This is very simple. You need to provide the two inputs of Rate of Returns and Number of Periods.
You can easily calculate the Present Value Factor in the template provided. Phonetic tamil typing cheat sheet.
You can download this PV factor template here – Present Value Factor Excel Template
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This has been a guide to Present Value Factor formula, its uses along with practical examples. Here we also provide you with Present Value Calculator with downloadable excel template.
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[wbcr_snippetid=”77105″]P/B Ratio Formula (Table of Contents)
Price to Book Value (P/B Ratio) Formula
Price to book value is an important measure to see how much equity shareholders are paying for the net assets value of the company. Price to book value ratio is also referred to as a market to book ratio. This ratio measures the proportion between the market price for a share and the book value per share.
Here’s the formula of price to book value –
Example of P/B Ratio Formula
Let’s take a practical example to see how the P/B ratio formula works.
You can download this Price to Book Value Ratio Template here – Price to Book Value Ratio Template
Binge Watching TV wants to see how their investors perceive them in terms of book value. They took out the market price of their equity shares and also zoomed in on their balance sheet for the shareholders’ equity. Here’re the details they found out – How To Find P Value
As an internal accountant, you need to find out the Price to Book Value Ratio.
To find out the P/B ratio formula, we need the market price per share and book value per share. In the above example, we know both.
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Using the P/B ratio formula, we get –
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Price to Book Value Ratio of Citigroup
Let us now apply Price to Book Value formula to calculate Citigroup Price to Book Value Ratio. First, we require Citigroup’s Balance sheet details. You may download Citigroup’s 10K report from here.
Below table shows, the Consolidated Shareholder’s equity section found on Page 133
From the table above, Citigroup’s Shareholder’s equity is $221,857 million in 2015 and $210,185 million in 2014.
Corresponding common stock outstanding numbers are 3,099.48 million shares in 2015 and 3,083.037 million in 2014.
Price of Citigroup as of 6th Feb, 2018 was $73.27
Explanation of P/B Ratio Formula
There are two components of the P/B ratio formula.
As you can understand, this ratio tries to analyze the proportion of the market price of each equity share and the book value per share at a certain point in time.
Use of P/B Ratio Formula
Calculate % In ExcelPrice to Book Value Ratio Calculator
You can use the following Price to Book Value Calculator
P/B Ratio Formula in Excel (with Excel Template)
Let us now do the same example above in Excel. This is very simple. You need to provide the two inputs of Market Price per Share and Book Value per Share. You can easily calculate the ratio in the template provided.
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This has been a guide to Price to Book Value formula, its uses along with practical examples. Here we also provide you with Price to Book Value Calculator with downloadable excel template.
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When you test a hypothesis about a population, you can use your test statistic to decide whether to reject the null hypothesis, H0. You make this decision by coming up with a number, called a p-value.
A p-value is a probability associated with your critical value. The critical value depends on the probability you are allowing for a Type I error. It measures the chance of getting results at least as strong as yours if the claim (H0) were true.
The following figure shows the locations of a test statistic and their corresponding conclusions.
a: not-equal-to.”/>
Note that if the alternative hypothesis is the less-than alternative, you reject H0 only if the test statistic falls in the left tail of the distribution (below –2). Similarly, if Ha is the greater-than alternative, you reject H0 only if the test statistic falls in the right tail (above 2).
To find the p-value for your test statistic:
Suppose you are testing a claim that the percentage of all women with varicose veins is 25%, and your sample of 100 women had 20% with varicose veins. Then the sample proportion p=0.20. The standard error for your sample percentage is the square root of p(1-p)/n which equals 0.04 or 4%. You find the test statistic by taking the proportion in the sample with varicose veins, 0.20, subtracting the claimed proportion of all women with varicose veins, 0.25, and then dividing the result by the standard error, 0.04. These calculations give you a test statistic (standard score) of –0.05 divided by 0.04 = –1.25. This tells you that your sample results and the population claim in H0 are 1.25 standard errors apart; in particular, your sample results are 1.25 standard errors below the claim.
When testing H0: p = 0.25 versus Ha: p < 0.25, you find that the p-value of -1.25 by finding the probability that Z is less than -1.25. When you look this number up on the above Z-table, you find a probability of 0.1056 of Z being less than this value.
Note: If you had been testing the two-sided alternative,
the p-value would be 2 ∗ 0.1056, or 0.2112.
If the results are likely to have occurred under the claim, then you fail to reject H0 (like a jury decides not guilty). If the results are unlikely to have occurred under the claim, then you reject H0 (like a jury decides guilty).
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