Final answer:
The discount rate used to discount future cash flows for potential projects is called the opportunity cost of capital. It is critical in determining the present discounted value of future benefits, comparing them against current costs for business and government investments.
Step-by-step explanation:
The discount rate that is often used to discount the future cash flows generated by potential projects is known as the opportunity cost of capital. This rate reflects the expected rate of return from alternative investments, considering the risk and potential gains or dividends involved. When businesses make physical capital investments or governments consider infrastructure proposals, they use the present discounted value to compare present costs with the future benefits, ensuring the investment is worthwhile. The appropriate interest rate, or discount rate, is essential in making these evaluations and is a cornerstone in financial analysis and decision-making.