Financial Terms Glossary

Discount Rate (pa%)

Formal

An internal, time based, profit or return requirement that can be applied to the cash inflows and outflows from an investment proposal in order to appraise its return and therefore net worth to a company. Application of a stated customer Minimum return (pa%) to cash flows from a project will derive a quantitative result - positive or negative - that is used as a basis for decision making and project approval.

Informal

A type of interest rate used by companies to check that the costs and returns from investments meet their minimum requirement levels. Eg Spend $100 today to get back $110 in one year's time. Return on this = 10%. If company has a minimum return requirement of 8%, then good decision. If company has Minimum return (pa%) requirement (or discount rate) of 12% then bad decision.

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