Everyone knows that a dollar today is worth more than a dollar tomorrow — this is because of inflation and the opportunity cost of what you miss out on by not having the dollar today. But how much less is that dollar received tomorrow actually worth? Discounting is a technique designed to answer this question by reducing the value of future cash flows to their present-day values. Once calculated, discounted future cash flows can be used to analyze investments and value companies.
EditGathering Your Variables
EditDiscounting Cash Flows
EditUsing Discounted Cash Flows
EditSources and Citations