Discounting and compounding in capital budgeting
What are the Discounting and Nondiscounting Criteria of Capital Budgeting? IRR. Explain the difference between compounding and discounting andCapital Budgeting Discounted Method# 4. Terminal Value Method: The terminal value method can be further extended to calculate the Terminal Rate of Return (also called Modified Internal Rate of Return) to overcome the shortcomings of the internal rate of return (IRR) method. The terminal rate of return is the compound rate of return, that, discounting and compounding in capital budgeting
Discounting is compounding in reverse. It starts with a future amount of cash and converts it into a present value. A present value is the amount that would need to be invested now to earn the future cash flow, if the money is invested at the cost of capital.