Discounting

For a single future cash flow, present value equals the future amount divided by (1 + r) raised to the number of periods, where r is the discount rate per period. The discount factor is 1/(1 + r)^n. Later receipts have lower present value when the discount rate is positive. The rate's time unit must match the cash-flow periods. Project analysis commonly assumes year-end cash flows unless timing information says otherwise. Discounting reverses compounding; it is not a deduction of the same percentage from the future amount for every year.