The discount rate is the interest rate applied in discounted cash flow (DCF) analysis to measure the current value of forthcoming cash flows. DCF analysis is crucial to determine how financially viable an investment is. In simpler words, DCF will help determine the present value of cash of the future cash any investment or project will return.

For example, if you place $100 into an account that yields 10% interest rate, that amount will eventually reach $110. The present value of that $110 is $100 since it is discounted by a rate of 10%.

References:

• https://www.investopedia.com/terms/d/discountrate.asp