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The act of determining the present value of future cash flows. Because money is subject to inflation and has the ability to earn interest, one dollar today is worth more than one dollar tomorrow. Discounting, then, is the act of determining how much less tomorrow's dollar is worth. For example, a bank may loan a sum of money and schedule repayments at $100 per month for 10 years. The bank may then discount the value of payments and determine exactly how much (in today's dollars) it will have received once the loan is paid off.
The appraisal method of computing the value of an income-producing property by calculating the present value of anticipated cash flows.