The principle
To update is to bring a future flow back to its current value. A distant collection is worth less than an immediate collection, because the money available now can be invested, reinvested, or used to avoid costly financing.
What the rate represents
The discount rate is not a decorative parameter. It reflects the cost of the resources mobilized and the risk of the project. Two projects with identical flows can lead to opposite decisions if their risk differs.
Read the result
A positive NPV means that the project creates value beyond the cost of capital used. A zero NPV, which remunerates exactly this cost, nothing more. A negative NPV does not mean “accounting loss”: it means “insufficient profitability in relation to the required rate”.
The classic error
Comparing two NPVs calculated with different rates makes no sense. The comparison assumes the same rate, the same analysis duration and uniform treatment of the residual value.
The reflex to keep
Before calculating, ask yourself three questions: which flows are really concerned, over what duration, and what rate correctly reflects the risk. The calculation comes later, and it becomes much simpler.