Cross Validated is a question and answer site for people interested in statistics, machine learning, data analysis, data mining, and data visualization. It only takes a minute to sign up.
Sign up to join this community
I was learning about BYTD in an online tutorial here
I understand that it is used
a) to predict the number of purchases that will be made by the customer.
b) Lifetime value of the cuatomer over a defined period.
I see that the authors use a term called "Discounted cash flow" and assign 0.01% as monthly discount.
However, I don't unserstand this.
Can someone help me understand what is the use of DCF and why should we use it?
Future cash reflects the belief that it's more valuable to have a dollar today than a dollar tomorrow. At a very high level of abstraction, if you have a dollar today, you have the option to either spend it or keep it. Keeping the dollar naturally implies that you have the dollar tomorrow, so the case of having a dollar today also includes the outcome "have a dollar tomorrow" among your options.
Another way to look at it is that you could die before tomorrow, and in that case, you'd never realize the value of getting a dollar tomorrow.
