Overview · What & why
A decision, before a calculation.
A dollar available today can be invested, so receiving the same dollar later has an opportunity cost. Discounting translates future cash into value at a common date. Compounding does the reverse. A discount rate expresses a required return for the purpose of the analysis; it is not automatically the loan rate or the property capitalization rate.
A concrete example
At 10% annually, $1M received in two years has a present value of $826,446.28. Receiving it after three years lowers present value to $751,314.80. The $75,131.48 difference is a timing effect, before any extra interest or operating costs.
What to remember
Timing is an economic input even when the total dollars do not change.
Before using this in a project: Cash-flow dates, the valuation date and a documented discount-rate assumption.
