Need help really understanding the concept of NPV
I watched the Finance Lessons of Martin Shkreli where he said this about Net Present Value:
"The discount rate is the opportunity costs, which is equal to the risk"
He continued saying that investing in a US bond gives 1.74% return which is the amount I want to get for my default risk. And future cash can be invested in this bond right now to get the interest, resulting in a lower NPV today than future payouts. So far so good.
But what if a company has huge risk and thus extremely huge cost of equity, like 30%?
1) far lower NPV because of risk of default, makes sense
2) but how do you think about it in terms of opportunity costs??? I mean, there is no low risk investment with 30% return, still just the US GovBond at 1.74%
So how do you think about it in both forms? Or is it either the first or the second?