Discount rate
Also called: required rate of return
The rate used to convert future cash flows into today's value, reflecting the return required for waiting and for the risk.
Riskier cash flows deserve higher discount rates. For shares the rate is the cost of equity; for a whole business it is usually the weighted average cost of capital. Higher rates lower present values, especially of distant cash flows.
Learn more in these lessons
- Present value and discountingHow do you work out what future money is worth today?
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