Discount rate as the analysis parameter investment planning

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2020-06-21 22:20:08

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The Conduct of any activity is impossible without the implementation of a thorough financial analysis, which also includes investment planning, business planning for the future ongoing evaluation activities. The analysis of any of these categories is accompanied by the presence of such parameters as discount rate. Accordingly, the higher the risk of the activities undertaken, the higher the expectations of investors and owners of capital, and the higher requirements for accurate and thorough calculation of the value of the cash flows. It is the analysis of deferred income in terms of sources of income is the process of discounting. The these activities are based on accurate analytical data.

discount rateFor minimizing discrepancies between the planned forecast performance and their future actual data you must use the correctly calculated cost parameters (revenue, costs), capital structure, investment flows, it is required to consider the residual value of the existing property and, of course, the discount rate (aka discount rate).

It is the latter index characterizes the set independently by the members of the production cost of capital. Its level depends on market interest rates, as well as expectations, opportunities, and goals. Discount rate shows that acceptable to investors the level of return on ruble of invested capital, which could be by investing in alternative, not as a risky venture.

For a more thorough understanding, we can say simply. For example, after 5 years people want to get 10,000 conventional money units. Discount rate allows you to determine how much they should invest in toe or other production, in order to dispose the desired amount. Therefore, this indicator has a key impact on the selection of an investment project.

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In addition, the parameter is used in all fields and industries. And its purpose is not always investment planning. He also characterizes the activities of any organization. Discount rate is indispensable in the analysis of investment cost, as well as various total costs for business planning.

discount rate formulaIn the same way as in the analysis of investment inflows, the management of any company has the ability to choose the least costly method of production or the most profitable. That, and the other allows you to determine exactly the rate of discount. Formula help to calculate this indicator includes a huge variety of parameters, such as:

- the interest rate (set by the owner of the borrowed capital);

- income rate (the rate of return, which installs on equity);

- the level of inflation;

- the rate of refinancing;

expert evaluation;

- the weighted average cost of capital, etc.

a method of adjusting the norms of the discountThe rate of discount can be determined by the following expression:

R = Rf + (Rmax + Rmin)/2 + S, where

R – respectively the discount rate;

Rf – risk-free rate;

Rmax, Rmin – the value of the maximum and the minimum risk premium;

S – accounting for risk of non-receipt of expected income.

Low-risk types of activities that occur exclusively in ideal models of the economy. And there currently does not exist. But it has a place a huge number of methods of analysis of investment projects, one of which is a method of adjusting the norms of the discount.


Article in other languages:

AR: https://tostpost.com/ar/business/22824-discount-rate-as-the-analysis-parameter-investment-planning.html

BE: https://tostpost.com/be/b-znes/40237-norma-dyskontu-yak-parametr-anal-zu-nvestycyynaga-planavannya.html

DE: https://tostpost.com/de/business/39781-die-norm-des-rabatts-als-parameter-analyse-investitionsplanung.html

ES: https://tostpost.com/es/centro-de/39510-tasa-de-descuento-como-el-par-metro-de-an-lisis-de-la-planificaci-n-de.html

HI: https://tostpost.com/hi/business/24450-discount-rate-as-the-analysis-parameter-investment-planning.html

JA: https://tostpost.com/ja/business/22368-discount-rate-as-the-analysis-parameter-investment-planning.html

KK: https://tostpost.com/kk/biznes/40620-diskont-normasy-ret-nde-parametr-taldau-investiciyaly-zhosparlau.html

PL: https://tostpost.com/pl/biznes/42490-stopa-dyskonta-jako-parametr-analizy-planowania-inwestycji.html

PT: https://tostpost.com/pt/neg-cios/42119-taxa-de-desconto-como-par-metro-de-an-lise-de-investimentos-planejamen.html

TR: https://tostpost.com/tr/business/37184-norm-indirim-gibi-bir-se-enek-analizi-yat-r-m-planlama.html

UK: https://tostpost.com/uk/b-znes/41123-norma-diskontu-yak-parametr-anal-zu-nvestic-ynogo-planuvannya.html

ZH: https://tostpost.com/zh/business/33583-discount-rate-as-the-analysis-parameter-investment-planning.html






Alin Trodden - author of the article, editor
"Hi, I'm Alin Trodden. I write texts, read books, and look for impressions. And I'm not bad at telling you about it. I am always happy to participate in interesting projects."

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