Discounting

Discounting means finding the value, in today’s dollars, of a future amount of cash by accounting for the time value of money. The time value of money in this context refers to the idea that money invested today has more (or a different) value than the same amount invested later. The present value of a future payment equals the amount that if invested today at a given rate of interest would result in the given value of the future payment. Discounting allows us to compare cash flows over time and determine the value of investments. It is the basis for the present value relation, which says that, under certainty, the value of a financial asset equals the sum of discounted values of its cash flows. ...