As we all know the value of money today is not the value of money tomorrow, the discounting may not be annually it can be frequent in times like intra month, intra quarter, intra year compounding and so on.
This can be formulated like
PV = FV * {1 /[1+(k/m)]}^(m*k)
Where,
PV = Present Value
FV = Future Value
K = Discount Rate
M = Number of times discounting
For example
Mr. X has the cash inflow of Rs.1,00,000 at the end of four years. The present value of cash inflow when the discount rate is 12% and discounting quarterly is calculated as
PV = Rs.1,00,000 * {1/[1+(0.12/3)]}^(4*4) = 1,00,000*0.623 = Rs. 62,300.
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