Discounting technique for calculating time value of money, Financial Management

DISCOUNTING TECHNIQUE is also called present value technique. It is the process of calculating the present value of cash flows.  Discounting is determining the present value of a future amount. Present value is the current value of a future amount.  That is in discounting; the present value of cash flows at a specified interest rate at the beginning of a specified period of time is calculated.  This is the most essential concept in financial decision making.  The present value (P) of a lump sum (F) occurring at the end of n period at i rate of interest is given by the equation

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The present value factor can be found out by referring to the present value tables.

 

Posted Date: 10/15/2012 9:03:53 AM | Location : United States







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