08-17-2010, 08:05 PM
Dear Shafi,
We discount the figure only due to incorporate the impact of time value of money. If you are using monthly cash flows you can discount using monthly equivalent rate. However, you are working on yearly cash flow you will not discount the year 0 so in year one discount factor will be 1 only or you can say first year which is also a year of operation will not be discounted because value of the money will be the same in first year. In subsequent year value of money will be decreasing and we will discount the value of subsequent years.
We discount the figure only due to incorporate the impact of time value of money. If you are using monthly cash flows you can discount using monthly equivalent rate. However, you are working on yearly cash flow you will not discount the year 0 so in year one discount factor will be 1 only or you can say first year which is also a year of operation will not be discounted because value of the money will be the same in first year. In subsequent year value of money will be decreasing and we will discount the value of subsequent years.
