Discount Rate

Discount Rate is the interest rate used to discount a stream of future cash flow to its present value. Depending upon the application, the discount rate is used to determine a company’s cost of capital or the current market rate. It is a mathematical formula that converts anticipated returns from an investment project to their current market value (present value). It is always less than 1, and depends on the cost of capital and the time interval between the investment date and the date when returns start to flow.