time value of money (2)

2. Discounted cashflow (DCF)

From FV = PV * (1 + r) ^n,
rearranging, we get:
PV = FV/ [(1 + r)^n]

Inversely, using the same examples from previous post,
$105 of 1 year later,
$110.25 of 2 year later,
$115.76 of 3 year later,
$162.89 of 10 year later
are all equivalent to $100, respectively.

It makes future value be able to "discount" back to present value.
If we convert all cashflow that we can get in the future to present,
we are using "discounted cashflow (DCF)".

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