Final answer:
The gross method accounts for purchase discounts later when the payment is made, unlike the net method. Present discounted value calculations are important in business to evaluate investments by comparing current costs to future benefits, taking into account potential earnings from capital gains and dividends.
Step-by-step explanation:
The method that accounts for purchase discounts later when the payment is made is referred to as the gross method. Unlike the net method, which accounts for the discount at the time of invoice, the gross method records the purchase at the full invoice price without considering the discount. The discount is only recognized if the payment is made within the discount period. When calculating the present discounted value of future profits, for each time period when a benefit is expected to be received, a specific formula is applied. To determine this value, it's important to assess the potential capital gains from future sales as well as any expected dividends.
Applying present discounted value is key in many business decisions beyond finance. It is used to evaluate capital investment projects or governmental proposals by comparing present costs to future benefits. Utilizing discounted value calculations enables an investor to decide what they're willing to pay now for a stream of benefits in the future, which is contingent on a variety of factors including future prospects and potential earnings.