Discount Rate
Percentage applied to future cash flows to calculate present value.
Formula
Present Value = Future Cash Flow ÷ (1 + r)ⁿ
Real World
When Tesco evaluates opening a new distribution centre, it uses a discount rate reflecting its cost of borrowing to determine whether future profits justify the upfront investment.
Exam Focus
Higher discount rate = lower NPV; always explain why in 'analyse' questions — link to risk and opportunity cost.
How well did you know this?