Continuously Compounded Interest

Cost of Capital

The cost of capital is often used as the discount rate, the rate at which projected cash flow will be discounted to give a present value or net present value.

The following equation relates to the value of the money I have now to the value of it in the future.

If I know I will get £50 in 30 days time, you can calculate its value today by using the following equation:

This lets me relate cashflows in the future to their present value by multiplying by this factor.