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Discounting and investment appraisal

Discounting

4.1 Introduction

Discounting performs the opposite function to compounding: it
considers a sum receivable in the future and establishes its equivalent
value today. This value, in today’s terms, is known as the Present Value
(PV).

4.2 Calculation for discounting a single value

PV = Future Value × Discount Factor (DF)

1
Where DF = , or DF = (1 + r) –n
1 + r n

–n
(1 + r) can be looked up in discounting tables

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