required rate of return vs. discount rate

[pomelo]

what’s the difference between required rate of return and discount rate? aren’t they the same?

 

[rawiswarden]

They can be the same. But you can discount things by any number of rates.

 

[mohammad.belaal]

DIscount rate is the interest rate which is used to discount back any FV to its PV. Consider it with this example. If we have a project which is financed by a company having a structure comprising both debt and equity and the project’s risk matches that of the firm and we are using WACC to calculate the NPV of the project then WACC is acting here as a discount rate. On the other hand if we want a specific return from that project inspite of WACC based on the risks associated with that bond or merely altering the sources of funds for that bond then that required rate of return which we’ll use to calculate NPV will act as the discount rate. At times required rate of return is interchangebly used with required rate of return on equity.