Time Value of Money & Discounting

A pound in your hand today is worth more than a pound promised next year, and not because of inflation. It is worth more because you could put today's pound to work: invest it, repay debt with it, or fund another project that earns a return. That single idea, the time value of money, is the foundation every rigorous project comparison stands on, and it is the reason a long stream of energy savings is worth less than its naive total. This lesson makes the idea precise with two tools: discounting, and the discount rate itself.