This brings us to the concept of interest rates . The cost of keeping money in a project, in our case a forestry project, is indicated by the interest or discount rate. Time costs money as do other inputs and the price of time is usually measured by the interest rate. In general, projects with a longer life require higher discount rates. Investors know that money can be made by lending money.
People are willing to pay for the use of money.
When an investment grows at a specified interest rate, we call it compounding . Discounting begins with a future amount and determines its worth today. There are a number of other more complex formulas used to calculate different types of terminating and infinite series of payments or costs. Some of these are introduced below and in other extension publications that are linked elsewhere in this section. You should be sure that your analysis is based on several appropriate real discount rates.