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Present Value of Earnings

Present value of earnings (PVE) is defined as the present discounted value of expected future earnings. Income is most commonly measured in annual terms; just about everyone knows their approximate yearly earnings from work. Moreover, just about everyone has at least a vague idea of the average yearly earnings of an occupation besides their own. Thus, the commonly used yardstick for measuring income is in terms of dollars earned annually; however, for some purposes, this annual yardstick is not sufficient. Some examples are weighing the net financial effect of going to college, estimating the economic damages in a wrongful-death lawsuit, and quantifying the value of human capital. The appropriate yardstick for purposes such as these is the present discounted value of expected future earnings over ...

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