Final answer:
The accountant is referring to the concept of present value (option a), which is a financial calculation used to determine the current worth of a future amount of money, taking into account a specific interest rate. It's commonly used in finance and other areas like government policy and business investment.
Step-by-step explanation:
The concept the accountant is asking about is known as the present value. The present value is a financial calculation used to determine the current worth of a certain amount of money to be received in the future, considering a specific interest rate.
To find the present value, the future amount is discounted by an interest rate that reflects the opportunity cost of capital and potential risks over time. In this case, with a 15% interest rate, the calculation would aim to identify what amount of money invested today would grow to the desired future amount when applying this interest rate cumulatively over the period until the future amount is due.
This tool is not only crucial in finance but also extends to situations involving government proposals, environmental policies, and other investments where costs and benefits occur at different times.For example, if a government is considering the addition of safety features to a highway, it is essential to compare the present costs of implementing such features against the present discounted value of the future benefits that will arise from improved safety.
This same method is employed when determining the worth of lottery winnings paid over an extended period, or when making decisions about capital investments in business. Whenever there is a need to establish a trade-off between present expenditure and future gains, the calculation of present value becomes an indispensable analytical tool.