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Discount Rate—Explanation, Definition and Examples

Valutico

Internal Rate of Return (IRR): IRR represents the discount rate at which the net present value (NPV) of all cash flows from the investment becomes zero. In other words, it is the rate of return that makes the present value of future cash inflows equal to the present value of cash outflows.

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Discounted-Cash-Flow-Analysis: Your Complete Guide with Examples

Valutico

But here, we use what interest we could get from an alternative investment in the market, called the Market Rate. Discount Factor (using Market Rate: r=10%). This value is widely referred to as the “Net Present Value” (NPV). . We add that return on, and get a larger cash value in future years. .