▁future ▁value ▁of ▁P ▁is ▁, ▁and ▁the ▁disc ount ▁can ▁be ▁calculated ▁as ▁▁▁▁ ▁We ▁wish ▁to ▁calculate ▁the ▁present ▁value , ▁also ▁known ▁as ▁the ▁" dis count ed ▁value " ▁of ▁a ▁payment . ▁Note ▁that ▁a ▁payment ▁made ▁in ▁the ▁future ▁is ▁worth ▁less ▁than ▁the ▁same ▁payment ▁made ▁today ▁which ▁could ▁immediately ▁be ▁depos ited ▁into ▁a ▁bank ▁account ▁and ▁ear n ▁interest , ▁or ▁invest ▁in ▁other ▁assets . ▁Hence ▁we ▁must ▁disc ount ▁future ▁pay ments . ▁Consider ▁a ▁payment ▁F ▁that ▁is ▁to ▁be ▁made ▁t ▁years ▁in ▁the ▁future , ▁we ▁calculate ▁the ▁present ▁value ▁as ▁▁▁▁▁ ▁Suppose ▁that ▁we ▁wanted ▁to ▁find ▁the ▁present ▁value , ▁denoted ▁P V ▁of ▁$ 1 0 0 ▁that ▁will ▁be ▁received ▁in ▁five ▁years ▁time . ▁If ▁the ▁interest ▁rate ▁r ▁is ▁ 1 2 % ▁per ▁year ▁then ▁ ▁Dis count ▁rate ▁▁ ▁The ▁disc ount ▁rate ▁which ▁is ▁used ▁in ▁financial ▁calculations ▁is ▁usually ▁chosen ▁to ▁be ▁equal ▁to ▁the ▁cost ▁of ▁capital . ▁The ▁cost ▁of ▁capital , ▁in ▁a ▁financial ▁market ▁equilibrium , ▁will ▁be ▁the ▁same ▁as ▁the ▁market ▁rate ▁of ▁return ▁on ▁the ▁financial ▁asset ▁mixture ▁the ▁firm ▁uses ▁to ▁fin ance ▁capital ▁invest ment . ▁Some ▁adjust ment ▁may ▁be ▁made ▁to ▁the ▁disc ount ▁rate ▁to ▁take ▁account ▁of ▁ris ks ▁associated ▁with ▁uncertain ▁c ash ▁flows , ▁with ▁other ▁develop ments . ▁ ▁The ▁disc ount ▁rates ▁typically ▁applied ▁to ▁different ▁types ▁of ▁companies ▁show ▁significant ▁differences