Discount factor in capital budgeting is the factor used to calculate the present value of future cash flows. This is used to compare different investment projects and select the one with the highest net present value.
The discount factor is an important part of capital budgeting because it helps to account for the time value of money. Money today is worth more than money in the future, so it is important to take this into account when making investment decisions. The discount factor is used to convert future cash flows into their present value, so that they can be compared on an equal basis.