What is the definition of Discount Rate in the hospitality industry?
The term Discount Rate, when used in the Discounted Cash Flow (DCF) evaluation, refers to the rate by which to discount projected future cash flows. The discount rate thereby conveys the time value of money and can make the distinction between whether an financing project is financially viable or not. It does this by permitting insight on the present value of anticipated future cash flow.
Where to find the discount rate?
The discount rate is usually given as a percentage and describes to the interest paid on cash lent.
How to calculate the discount rate?
If no discount rate is given, the discount rate can be uncovered by calculating the WACC. A firm’s weighted average cost of capital (WACC) is used by depositors for valuations. It represents the required rate of return that investors expect from investing in the company. This discount rate is always helpful, as the basis of the calculation is time.