Discounting basically involves looking at income backwards. Rather than seeing how much money you will have next year (say $1.05 if you put $1 in an investment yielding 5 percent), you look at money expected in the future and see how much less it is worth currently (thus, next year’s $1 is worth today only about 95¢, which could be invested at 5 percent to produce approximately $1 at that time).
