The present value of an asset is the opposite of the present value of a liability.

Question

Quizplus · Accepted Answer

The present value of an asset and the present value of a liability are both calculated using the same formula of discounting future cash flows. The difference lies in the type of future cash flows being discounted. For an asset, the future cash flows are expected to be positive and represent earnings or proceeds from sale, while for a liability, the future cash flows are expected to be negative and represent repayment of a loan or settlement of an obligation. Therefore, the present value of an asset and the present value of a liability are not opposite of each other.

The Present Value of an Asset Is the Opposite of the Present