You have an opportunity to invest in a business venture. It requires a $250,000 investment on January 1st. You will receive $70,000 in After-Tax Cash Flows per year on December 31st for 3 years.
At the end of 3 years, the project will be terminated, and all assets liquidated.
The net terminal value is $80,000.
Although the sum of all these cash receipts is $290,000, you realize that the Time Value of Money concept means that those future cash receipts are worth less in "today" dollars.
Therefore, for all investment opportunities, you use 10% to analyze the current (i.e., present) value of all future cash flows.
The Present Value factors at 10% are Yr 1 = 0.909, Yr 2 = 0.826, and Yr 3 = 0.751