How is NPV (Net Present Value) calculated and what is the discount rate?
NPV (Net Present Value) is a measurement of the profitability of undertaking an investment. It is calculated by taking the difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital budgeting to analyze the profitability of an investment or project.
The discount rate is the rate of return used to determine the present value of those future cash flows. Companies have different ways of identifying the discount rate. A common method is using the expected return of other investment choices with a similar level of risk.
Users define the discount rate in the 'General Information' section of the Proposal Editor screen. It only applies to the calculation of NPV and nothing else. Users can define the 'Default Discount Rate’ inside the 'Proposals' > ‘Default Inputs’ section on the 'Settings’ screen.