discounting

Discounting refers to the practice of determining the present value of future cash flows or benefits, based on the idea that money available now is worth more than the same amount in the future due to its potential earning capacity. This concept accounts for inflation and opportunity costs. For example, receiving $100 today is more valuable than receiving $100 in five years, as you could invest that money and earn interest. In finance and economics, discounting helps individuals and businesses make informed decisions about investments, loans, and the value of future returns.