A concept that asks, “How much money will I have to invest today at a discount rate of d percent in order to have x pounds at the end of n periods?” e.g., “How much money will I have to invest today at 10% per year in order to have 16,100 at the end of 5 years?”
The rate used to discount future cash flows to their present values is a key variable in this process. The discount rate is the minimum acceptable rate of return on an investment whether in a project or in a firm.
The term Present Value is usually associated with one particular method of analysis in investment appraisal – the Net Present Value (NPV) method.
The discount rate is equal to the investor’s cost of capital plus
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