How to Calculate Discount Factor in NPV defines the process of determining the present value of future cash flows in Net Present Value (NPV) analysis. NPV is a method used to assess the profitability of long-term investments by considering the time value of money.
Calculating the discount factor is crucial for accurate NPV assessment. It reflects the opportunity cost of capital, which is the return you could have earned by investing elsewhere. By applying the correct discount factor to future cash flows, you can determine the present value of each flow and make informed investment decisions.