5.2 Present Value and Discounting
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Discount factor
1/(1+r)^t
Discounted cash flow (DCF) valuation
Calculating the present value of a future cash flow to determine its worth today
PV formula
PV = FV x [1/(1+r)^t] FV = future value r = interest rate t = periods
Present Value (PV)
The current value of future cash flows discounted at the appropriate discount rate - discounting money back to the present
Discount rate
The rate used to calculate the present value of future cash flows
Discount
To calculate the present value of some future amount
