discount rate in cost of capital

What Does Discount Rate Mean?
1. The interest rate that an eligible depository institution is charged to borrow short-term funds directly from a Federal Reserve Bank.

2. The interest rate used in determining the present value of future cash flows.

Example

To calculate the present value of a single cash flow, it is divided by one plus the interest rate for each period of time that will pass. This is expressed mathematically as raising the divisor to the power of the number of units of time.

Consider the task to find the present value PV of $100 that will be received in five years. Or equivalently, which amount of money today will grow to $100 in five years when subject to a constant discount rate?

Assuming a 12% per year interest rate it follows

Hi sindhu Discount rate in easy terms is to compute the value of money in today which will be received in future.we all know that in future the value of money is less than what it is today. so by using discount rates we compute the value of future receivable money's value in todays time.