A common question in discounted cash flow analysis is, “What should I use for the discount rate?”

An easy answer is, “Ask your Chief Financial Officer (CFO) for the discount rate applicable to your particular capital budgeting project.”

However, you may be with a smaller company that has no CFO. Or perhaps you just want to use Discounted Cash Flow Analysis Calculator to play with a few ideas before you share them with others.

In either case, one of the best sources of information about discount rates is the Federal Reserve Bank of St. Louis’ Economic Research web site at: http://research.stlouisfed.org/fred2/categories/116

There you’ll find the current and historical Treasury Bill Rates for 1-Year Treasuries, 3-Month Treasuries, 4-Week Treasury Bills and 6-Month Treasury Bills. For each bill, you’ll find a historical chart (with recession bars, if you wish) and the latest reported observations. You’ll also find links to the FRED graphing tool. (And you’ll probably be surprised at how low the discount rates are in our current economic environment.)

For most discounted cash flow analysis, you will not go too far astray if you use the auction discount rate on the 6-Month Treasury Bills. That discount rate should approximate the rate of return your firm will receive on short-term investments. And that’s probably why you’re doing discounted cash flow analysis — to determine if your capital budgeting project will yield a better return than what you will earn by investing in an interest-bearing instrument instead.