The formula $$pv = \frac{fv}{(1 + r)^n}$$ is used to calculate the present value (pv) of a future sum of money (fv) given a specific interest rate (r) over a certain number of periods (n). This concept illustrates that the value of money decreases over time due to interest rates, emphasizing the importance of understanding how cash flows in capital budgeting are evaluated. The equation helps decision-makers determine whether future cash flows justify an investment today.
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