Capital budgeting decisions hinge on the discount rate applied to future cash flows.

Evidence

Treynor specialized in the analysis of the financial aspects of business decisions such as whether to buy or to lease machine tools (Treynor and Vancil 1956). Those decisions typically involve working out the present value of projected future income and expenditures. Such calculations depend critically on the choice of interest rate at which to discount future cash flows. — Donald MacKenzie, An Engine, Not a Camera, 561

Categorization

• DEFINE: Grounds the discount-rate concept that underpins the CAPM derivation.
• XREF: connects to: Stock valuation discounts future dividends because present money earns interest. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 205; Ad hoc risk-adjusted discount rates can swing investment decisions arbitrarily. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 562