The return that could be earned per unit of time (usually one year) on an investment with similar risk, which is assumed constant over time
It is a positive number (usually designated as "
r") showing how future cash value
F over period of time
t (usually one year) is related to the present cash value
P:
| F = P \cdot (1+r)^t |
In other words it's equivalent to the interest rate in unit time t which can be potentially returned on the initial investment of cash P.
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 investment policy but usually related to the market-determined Weighted Average Cost of Capital
See also
[ Weighted Average Cost of Capital (WACC) ]