1. Discounting future income and cost

2. $1000 today will grow, if put in a bank. At 1% interest – Compounded annually You’ll have $1010 after one year. – $10 is 1% of $1000 – $1010 = $1000×(1 + interest rate)

3. Next year value = This year value × (1 + interest rate) So …

4. $1000 today will grow, if put in a bank. At 1% interest – Compounded annually You’ll have $1020.10 after one year. – $10 is 1% of $1000 – $10.10 is 1% of $1010. – $1020.10 = $1000×(1 + interest rate) 2

5. Value in two years= This year value × (1 + interest rate) 2 So …

6. Present value