Final answer:
Discounting is the process of converting future income or costs to present value, essential for comparing present costs against future benefits in various fields like business investments, government policies, and environmental policy debates.
The correct option is b.
Step-by-step explanation:
The process of converting future income or costs to their present value is known as discounting.
Present discounted value is a crucial analytical tool utilized not just in finance but also in other sectors such as business investment analysis, government policy making, and environmental policy evaluation.
It involves comparing immediate expenditures with the present discounted value of future benefits to make informed decisions about investments and projects.
For example, when a government considers adding safety features to a highway, it compares the costs that will be incurred now to the benefits that will be received in the future, adjusted for the time value of money.
Similarly, in environmental policy, debates over the costs of reducing carbon dioxide emissions are analyzed against the long-term future benefits, discounted to present value.
This tool is also invaluable for individuals who want to calculate the present value of payments they are due to receive in the future, such as lottery winnings distributed over many years.
The correct option is b.