The rate of return used to reduce future cash flows to their present value is known as a discount rate.
An investment opportunity's whole value is intended to be captured by the financial term known as net present value (NPV). The goal of NPV is to forecast all potential future cash inflows and outflows related to an investment, discount each one to the present, and then tally them all up. Since discounted cash flows are used in the analysis, net present value is more accurate than any other capital budgeting technique since it takes time and risk into account.
The rate of return used to reduce future cash flows to their present value is known as a discount rate. This rate is frequently referred to as a company's Weighted Average Cost of Capital (WACC), needed rate of return, or hurdle rate, which refers to the rate of return investors must achieve relative to the risk involved in the investment.
The separate computations for each project is as follows,
Hence, Project X should be selected. Project Y dose not provide 18% return as shown negative Net present value.
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