Defining a discount rate to use Flashcards

1
Q

The discount rate is the required rate of return which an investor should require given

A

The riskiness of the investment project

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2
Q

You can figure out a discount rate to work with by

A

Using the WACC

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3
Q

You can also find the discount rate by working with

A

Industry/sector standards

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4
Q

Another way to find a working discount rate is by

A

Using the build up method using a risk free rate as a starting point

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5
Q

The WACC

A

Reflects the weighted average of required rates of return for the sources of capital

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6
Q

Often times industry standards can

A

Help deduce a suitable discount rate using their aggregate WACC

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7
Q

The build up method

A

Uses a risk free rate as a starting point and adds additional risk premia

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8
Q

Examples or risk premia are

A

Equity size, company size, company specificity, country/region, product-specific premia

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