A company can elect to fund a different project that will earn 5%, so this rate is used as the discount rate. The present value factor in this situation is ( (1 + 5%)³), or 1.1576.

Two primary formulas are used to determine the discount rate: the weighted average cost of capital (WACC) and the adjusted present value (APV). 2 The WACC discount formula is WACC = E/V × Ce × D ...

Step 5: Sum the Present Values Add the discounted cash flows from Step 3 and the terminal value from Step 4 to get the total present value of the investment or business.