The interest rate used to determine a firm’s present value of future cash flows. This rate is set by taking into consideration the time value of funds and the risk of a company’s forecast for future cash flows.
A discount rate also describes that interest rate a depository institution is charged to borrow short-term funds from a government’s central bank, although this method of borrowing is relatively rare. Commercial banks have turned to other sources of financing as opposed to the Discount Window.
