The net discount rate is an essential measure in various financial models, used to determine the present value of future cash flows by factoring in the expected rate of return and inflation. It plays a crucial role in investment analysis, project evaluation, and capital budgeting decisions.
The relevance of the net discount rate stems from its ability to account for the time value of money, the changing purchasing power due to inflation, and the risk associated with different investments. Historically, the development of the net discount rate concept can be traced back to the early days of financial modeling and the work of economists like Irving Fisher and John Maynard Keynes.