Interest rate that your investment will earn at the next best option.

The interest rate earned by the best investment available to an investor other than the investment under consideration. ARR—adjusted as appropriate for taxes and differences in length and risk of the investment—is the appropriate discount rate to use in calculating net present value, benefit/cost ratio, and equal annual equivalent, and is the appropriate hurdle rate to use in evaluating investments ranked by internal rate of return. Also see “Benefit/cost ratio,” “Equal annual equivalent,” “Internal rate of return,” and “Net present value.