How to calculate net present value (NPV) discount rate is a fundamental concept in financial analysis, particularly when evaluating long-term investment projects or capital budgeting decisions. NPV measures the current value of a future stream of cash flows, taking into account the time value of money.
The relevance of NPV discount rate lies in its ability to compare different investment options on a level playing field. By incorporating the time value of money, NPV ensures that projects with distant cash flows are not overvalued compared to those with immediate returns.