Discounting future cash flow to the present period is common in capital budgeting. If positive cash flow at the end of year 2 is 132000, the interest rate for year 1 is 10 percent, and the interest rate for year 2 is 20 percent, the present value of 132000 at the beginning of year 1 is: $100,000 But why is the answer 100,000. I have the discounted cash flow formula but I still don't understand how to solve it.
Discounting future cash flow to the present period is common in capital budgeting. If positive cash flow at the end of year 2 is 132000, the interest rate for year 1 is 10 percent, and the interest rate for year 2 is 20 percent, the present value of 132000 at the beginning of year 1 is:
$100,000
But why is the answer 100,000. I have the discounted cash flow formula but I still don't understand how to solve it. Step by step would be much appreciated. I am new to statistics
A dollar today is worth more than a dollar tomorrow, according to the time value of money theory. This is due to the fact that as time passes, money becomes less valuable.
Additionally, it is believed that money will accrue interest over time and will grow in value over time if invested. The process of interest accruing on an invested sum and then interest being generated on interest is referred to as compounding.
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