MANAGEMENT

Detailed explanation-1: -It helps us to make investment decisions for assets and figure out whether the asset is worth the money or not. The alternative cost here is the amount the business will have to lose for investing in an alternative asset. The discount factor asked in the question is a measure of the same alternative cost.

Detailed explanation-2: -The discount factor of a company is the rate of return that a capital expenditure project must meet to be accepted. It is used to calculate the net present value of future cash flows from a project and to compare this amount to the initial investment.

Detailed explanation-3: -Discount rates also reflect the opportunity cost of capital. The opportunity cost of capital is the expected financial return forgone by investing in a project rather than in comparable financial securities.

Detailed explanation-4: -Interest can be earned over time if the capital is received on the current date. Hence, the discount rate is often called the opportunity cost of capital, i.e. the hurdle rate used to guide decision-making around capital allocation and selecting worthwhile investments.

Detailed explanation-5: -What is a “Discount Factor”? The term “discount factor” in financial modeling is most commonly used to compute the present value of future cash flows values. It is a weighting factor (or a decimal number) that is multiplied by the future cash flow to discount it to the present value.