Present value (PV) is the current value of future cash flows discounted at the appropriate discount rate. Therefore the present value of £400,000 one year from now must be less than £400,000 today. After all, a pound today is worth more than a pound tomorrow, because the pound today can be invested to start earning immediately. Thus, the present value of a delayed payoff may be found by multiplying the payoff by a discount factor, which is less than one.The rate of return (r) is the reward that investors demand for accepting delayed payments. To calculate present value, future payoffs are discounted by the rates of return offered on alternative investments. This is called the discount rate or opportunity cost because it is the return forgone by investing in the project rather than in securities