<Li> That the likelihood of receiving the payments is high--or, alternatively, that the default risk is incorporated into the interest rate . </Li> <P> See time value of money for further discussion . </P> <P> There are mainly two flavors of Present Value . Whenever there will be uncertainties in both timing and amount of the cash flows, the expected present value approach will often be the appropriate technique . </P> <Ul> <Li> Traditional Present Value Approach--in this approach a single set of estimated cash flows and a single interest rate (commensurate with the risk, typically a weighted average of cost components) will be used to estimate the fair value . </Li> <Li> Expected Present Value Approach--in this approach multiple cash flows scenarios with different / expected probabilities and a credit - adjusted risk free rate are used to estimate the fair value . </Li> </Ul>

If the present value of money is less than the expected revenue generated the loan