Definition of Discounted Rate

A discounted rate is a financial method where future payouts are estimated to their present value. This method gives an estimated value about the amount which will be generated in the future against the investment which you are making today. Through the discount rate, all possible future cash flows can be discounted to present value. After analysis, If the net present value appears positive, the project in which the company is interested to initiate is considered profitable and vice versa.


Through the discount rate, we can find out if it's worth to start a new project whose future cash flows are greater than the cost of the venture. The future cash flows at least meet the cost of capital to start the venture or exceeds it for profit earnings.

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