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What is discounting?

What is discounting?

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Discounting is the process of determining the present value [the current value of a future sum of money or stream of cashflow (the net amoun of cash and cash equivalents being transferred into and out of a business)given a specified rate of return(the net gain or loss of an investment over a specified time period which is expressed as a percentage of the investment's initial cost)]of a payment or a stream of payments that is to be received in the future.

As we know the the time value of money indicates that a dollar today is worth more than it would be worth tomorrow. discounting is the primary factor that is used in pricing a stream of tomorrow's cash flow in a business.

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