Kurt won a lottery and will receive $1,000 a year for the next 50 years. The current value of his winning today discounted at his discount rate is called present value.
What is a Discount rate?
A discount rate is the rate of return used in corporate finance to reduce future cash flows to their present value. This rate is sometimes referred to as a company's Weighted Average Cost of Capital, needed rate of return, or hurdle rate, which refers to the rate of return investors must achieve relative to the risk involved in the investment. In a Discounted Cash Flow analysis, the Net Present Value of a company is determined using a discount rate. Additionally, it is used for:
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