Conclusion

Present value remains one of the simplest and most powerful techniques in finance, providing a wide range of applications in both personal and business decisions. Cash flow can be moved back to present value terms by discounting and moved forward by compounding. The discount rate at which the discounting and compounding are done reflect three factors: (1) the preference for current consumption, (2) expected inflation and (3) the uncertainty associated with the cash flows being discounted.

In this chapter, we explored approaches to estimating the present value of five types of cash flows: simple cash flows, annuities, growing annuities, perpetuities, and growing perpetuities.

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