There is a certain concept that I need to re-familiarize myself with. I forget what it is called!
One implication of this principal would be for valuing a business for purchase. For simplicity sake, let’s say the profit from a business has been estimated for the next ten years. Using this principal (I forget what it is called) the value of each dollar’s worth of the tenth year of profits would be worth less than a dollar of profit today depending on the minimum return (as a percentage) that the investor would be willing to accept. So, by applying a percentage, the investor could calculate say 10 years (10th year, 9th year, 8th year, …) of future profit from a business and arrive at a price he or she would be willing to pay for the business (or investment).
What is this concept called?
Discounted Cash Flow