Discounting Future Earnings

The value of the income from five years is then the expected future income, discounted by the discount factor taking into account the duration.

Example: A company is expected to generate income of EUR 100 thousand in each of the next 5 years. Then, the present value of these future earnings equals 100 TEUR/(1+0.099)1+100 TEUR/(1+0.099)2 + 100 TEUR/(1+0.099)3 = (91 + 83 + 75 + 68 + 62) TEUR = 379 TEUR. Discounting results in a reduction of approximately 1/3 when considering 5 years in this example.

Finally, the expected earnings for the time beyond the planning horizon must be taken into account.


What are your challenges?

Restart Dialogue