A positive number (usually designated as "
r") showing how future cash value
F in time
t (usually 1 year) is related to the present cash value
P:
| F = P \cdot (1+r)^t |
The word " discount" means that a cash flow today is more valuable than identical cash flow in future because a present cash can be invested immediately and begin earning returns at rate r, while a future flow cannot.
The value of discount rate is set by the corporate policy and usually related to the Weighted Average Cost of Capital