DCF discount rate?

Discussion in 'Economics' started by HezBallah, Oct 28, 2012.

  1. Why does the discount rate here different from what I thought a discount rate is? Why does it take into account the weighted cost of capital? I realize this is a CAPM equation... but why does it intuitively make sense as a discount rate? Why isn't the discount rate just the risk-free interest rate?

    The discount rate. This is the rate at which you discount future cash flows.

    The discount rate is by how much you discount a cash flow in the future. For example, the value of $1000 one year from now discounted at 10% is $909.09. Discounted at 15% the value is $869.57. Paying $869.57 today for $1000 one year from now gives you a 15% return on your investment. The discount rate is essentially your required annual return on investment.

  2. newwurldmn


    Whats up with all the corporate finance questions?
  3. I've been reading a bunch of research reports lately and I'm trying to better understand them.
  4. newwurldmn


    Istead of askng here where you'll get a lot of random people guessing, you should get a good corporate finance text book. They are pretty easy to read and probably cheap.