Discount rate in the assessment of investment project effectiveness
Discount rate in the assessment of investment project effectiveness

Summary/Abstract: The discount rate expresses the limit rate of return expected by the investors from the capital invested by them. Calculating the discount rate on the appropriate level is important because of its effect on assessing investment projects in both absolute and relative calculation of investment effectiveness. In the article examples of changes in value of indicators of investment effectiveness assessment depending on the adopted discount rate are analyzed. In the absolute calculation of investment effectiveness, basically an increase in the discount rate reduces the attractiveness of the project. However, with a special distribution of cash flows over time, the opposite relationship may occur. In the relative calculation, a situation is possible in which, for different levels of discount rates, different projects are those most profitable.

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