TVM as the Foundation of Valuation

Since time is the one universal and unmovable constant in life, we can use it as the baseline when assigning value to our resources

When comparing the value of a dollar today to a dollar tomorrow, that baseline change, since we lost the optionality of a day, is called the discount rate.

In valuation, the discount rate is always displayed as an annual rate, and most types of analysis are done at an annual level for reasons of practicality and feasibility. From here on out all rates will be annual rates unless otherwise noted, and whenever you’re reading about finance elsewhere, assume all rates are annual.