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Sir, u said in your lecture on investment appraisal methods that discounted cash flows are discounted on the interest rate (cost of capital) because we will be paying interest on borrowed money which is used to buy the machine.
BUT Why do we discount the interest rate each year? Like If the interest rate or cost of raising the money is 10% then why it is 0.909 at the end of the first year, in the second year it is 0.826 and 0.751 in the third and so on but why is it is not fixed?
Are we assuming that each year interest rate would be changing and it is the general inflation rate that is causing interest rates to be higher or lower as explained by the Fisher formula?
Is it true that it is the inflation that caused the nominal interest rate to be decreasing each year, the longer the period the more decreasing the interest rate would be?
Interest in not considered in Discounting because it is already included in discount factor
Nominal interest will be more if inflation is more fisher model
I+I= I+r X I+h
But final verdict is with sir johnA pound worth today is not the same in future it will be more than one pound
So to know the present value of future cash flow we discount them
Because future one pound value is less than one pound Today
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