What is current purchasing power method?
To evaluate an investment which has cash inflows and/or outflows spread over several years it is necessary to take account of the time value of money. That is because a sum to be received in the future is worth less than the same amount received now because the amount received now can be invested immediately. Thus it will grow through earning interest to be a bigger amount at the date when the future amount is received.
To equate the cash flows in such an investment they must all be adjusted to their current purchasing power. This is called discounting and can be done with present value tables which supply discount factors for all likely rates of interest over a range of years.
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