Discount Rate (pa%)

Formal

An internal, time based, profit or return requirement that can be applied to the cash inflows and outflows from an investment proposal in order to appraise its return and therefore net worth to a company. Application of a stated customer Minimum return (pa%) to cash flows from a project will derive a quantitative result - positive or negative - that is used as a basis for decision making and project approval.

Real-world Example

An investor uses an 8% discount rate to work out the present value of $1,000 they expect to receive in 3 years, because money received later is worth less today than money in hand now.