Final answer:
The process described in the question is the Present Discounted Value method, which uses the IRR as the discount rate to determine the present value. This method divides the present value into operating income and resale value.
Step-by-step explanation:
The process described in your question is the Present Discounted Value method. This method is used to determine the value of an investment by discounting the projected future cash flows to their present value. The discount rate used in this calculation is typically the internal rate of return (IRR).
When using the IRR as the discount rate, the present value is divided into two components: operating income and resale. Operating income refers to the cash flows generated by the investment during its useful life, such as rental income from a property or profits from a business. Resale value refers to the expected cash inflows from the sale of the investment at the end of its useful life.
An example would be evaluating the present value of purchasing a rental property. The operating income would be the rental income received each month, and the resale value would be the expected sale price of the property at the end of the investment period.