Discounted cash flow techniques - part 1

In this lesson

1. 0:00 Time value of money and investment projects
2. 1:32 Why money has time value today
3. 4:02 Three reasons money loses value over time
4. 4:42 Compounding and discounting explained
5. 5:12 How compound interest grows investments
6. 7:04 Discounting as the reverse of compounding
7. 8:10 Calculating present value of future cash
8. 11:15 Using discount factors for cash flows

About this lesson

We'll explore the three key reasons money today is worth more than money in the future—inflation, investment opportunities, and risk—then work through the relationship between compounding and discounting using practical examples. By the end, you'll understand how to bring future cash flows back to today's terms, a foundation skill for all advanced project appraisal methods you'll encounter in FM, AFM, and SBL. This video builds your understanding of a concept that underpins NPV, IRR, and profitability index calculations. You'll see how a £1,000 investment grows through compound interest, then reverse that logic to discount future cash flows back to present value. The session covers discount factors, terminal value, and multiple calculation methods—giving you flexibility and confidence when tackling investment appraisal questions. Whether you're studying Financial Management, Advanced Financial Management, or Strategic Business Leader, mastering discounting now will make the more complex techniques feel achievable and logical.

Duration: 12m