*expected net receipts*. These are future receipts after deducting any related payments. For example, if you are likely to receive $1,200 one year from today, but will have to pay a fee of $200 at the time of the receipts, the expected

*net receipts*will be $1,000.

Often we need to know the

*present value*of amounts expected in the future. We calculate the present value by

*discounting*the future amounts. In this situation discounting means 1) removing a specified amount of interest, or 2) adjusting for the time value of money. The concept is that receiving $1,000 in the future is less valuable than receiving $1,000 today.

If we assume that the time value of money is 10% per year, a net receipt of $1,000 one year from today will have a present value of $909. In other words, we discounted the future value of $1,000 by $91. With a time value of money of 10%, the $909 can be invested today and will grow by $91 ($909 x 10%) to be $1,000 in one year. Receiving a net amount of $1,000 in two years will have a present value of only $826. The reason is that $826 invested today at a compounded rate of 10% will grow to $1,000 in two years. If all amounts are certain, you will be in the same position whether you have $826 today or you receive $1,000 in two years.

*To learn more, see the Related Topics listed below:*