# discounting

## Definitions

### General Science

- noun a method used by economists to calculate the cost in current value of a projectâ€™s future costs and benefits

### Construction

- Adjusting cash flow to a common point in time (often the present) when an analysis is performed. The conversion of all costs and savings to time-equivalent "present values" allows them to be added and compared in a meaningful way.

### Health Economics

(written as *Discounting*)

A procedure for converting costs or benefits occurring at different dates to a common measure by use of an appropriate discount rate. Thus, with an annual discount rate *r* (expressed as a decimal fraction) the present value *(PV)* of a cost *(C)* in one year's time is *PV* = *C*/(l + *r*). In two years' time, it is *PV* = *C*/(1 = *r*)^{2}. The *PV* of a stream of future costs is the sum of every year's *PV*. For a stream, *C*, that is constant, the discrete time formula is *PV* = *C*(1 - (1 + *r*)^{-n})*P/r*. Of course, the same procedure applies to benefits as to costs. In cost-effectiveness and related analyses there is controversy as to whether a common discount rate should be used for costs and benefits and also as regards the use of the general rate used for public sector decisions.

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