DISCOUNT RATE

The discount rate is one of the five baskets/categories of information that is utilized in the valuation of financial products like stocks and bonds and in the evaluation of business investments. What is the information that is incorporated in the discount rate?

Question 41 in Ch 08 of your text states the following:

A classic problem in management of forests is determining when it is most economically advantageous to cut trees for lumber. When the tree is young, it grows very rapidly. As it ages its growth slows. Why is the NPV maximizing rule to cut the tree when its growth equals the discount rate?

Do you agree with this characterization of the discount rate in NPV analysis?

How would you go about making the discount rate and time value of money relevant to decisions that are required in todays world?

Example:

There are nearly 50,000 products in a typical supermarket store of which 20,000 use palm oil. Palm oil is primarily harvested in Indonesia.