Problem:
When we use the present value theory to discount future amounts, what are we attempting to do or prove?
Present value theory provides a basis for valuing something such as a business or a product. As long as the expected future cash flows provide an economic value (i.e., positive net present value) then the item of interest should be purchased, produced, or developed. Future cash flows are discounted based on the desired rate of return back to their present value. This is done in order to compare "apples to apples," because a dollar today is worth more than a dollar in the future.
Respond:
How do we determine the rate of the discount?