A valuation method that estimates the value of an investment based on its expected future cash flows, adjusted for the time value of money using a discount rate. This technique brings future cash flows back to present value terms for comparison and decision-making.
The methodology developed from 19th-century actuarial mathematics and was refined by financial economists in the mid-20th century. The 'discounting' concept comes from the practice of reducing future values to account for risk and time preferences. It became standard in corporate finance and investment banking by the 1970s.
Try Another Word