An asset is expected to generate cash flows of \($100\) in one year, \($150\) in two years, and \($200\) in three years. The value of this asset today, using a 10 percent discount rate, is

The value at t = 0 is \($365.14\). The same logic is used to value an asset at a future date.
The value of the asset at t = 1 is the present value, discounted back to t = 1, of all cash flows after this point. This value, V1, is

At any point in time, the asset’s value is the value of future cash flows (CF) discounted back to that point. Because V₁ represents the value of CF₂ and CF₃ at t = 1, the value of the asset at t = 0 is also the present value of CF₁ and V₁:

Finding V₀ as the present value of CF₁, CF₂, and CF₃ is logically equivalent to finding V₀ as the present value of CF₁ and V₁.

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100 150 200 Vo + + (1.10) (1.10) (1.10) = 90.909+123.967+150.263= $365.14