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Discounting future income and cost

Discounting future income and cost. $1000 today will grow, if put in a bank. At 1% interest Compounded annually You’ll have $1010 after one year. $10 is 1% of $1000 $1010 = $1000×(1 + interest rate). Next year value = This year value × (1 + interest rate) So ….

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Discounting future income and cost

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  1. Discounting future income and cost

  2. $1000 today will grow, if put in a bank. • At 1% interest • Compounded annually • You’ll have $1010 after one year. • $10 is 1% of $1000 • $1010 = $1000×(1 + interest rate)

  3. Next year value = This year value × (1 + interest rate) So …

  4. $1000 today will grow, if put in a bank. • At 1% interest • Compounded annually • You’ll have $1020.10 after one year. • $10 is 1% of $1000 • $10.10 is 1% of $1010. • $1020.10 = $1000×(1 + interest rate)2

  5. Value in two years= This year value × (1 + interest rate) 2 So …

  6. Present value

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