The approach for comparing such impacts on personal, business, and public finance is discounting a process of converting a stream of returns or costs incurred over time to a single present value. The present value accounts for both the absolute size and the timing of impacts of a proposed action.
Why is a payment of $100 received at the end of one year not equivalent to $100 received now? If inflation’s erosion of purchasing power and the uncertainty of the future seem to make the answer obvious, assume that the $100 is certain to be received and has been adjusted for price-level changes: The reason for discounting is related neither to inflation nor to uncertainty. The reason is simply that the $100 available now can yield a flow of valuable services (or interest) throughout the year. At the end of the year, the holder could have $100 plus the flow received for use of the $100 during the year, the holder could have $100 now has greater value than does $100 received at the end of the year. Furthermore, as the date of receipt is more distant, the present value of a given dollar amount is lower: the flow of services between now and then would be greater.