Implied Discount rate - NABE
Implied Discount rate - NABE
Implied Discount rate - NABE
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<strong>Discount</strong> <strong>rate</strong> of revenue stream – Numerical example<strong>Discount</strong> Rate forrevenue streamA B C D = A – B – C C + DE = A – BRevenuesVariableCostsFixedCostsOperatingIncomeRevenue –Variable CostsYear 1 $100 $50 $20 $30Year 2 $90 $45 $10 $35Year 3 $120 $60 $25 $35$50$45$60<strong>Discount</strong>RatesPresentValues5% 12%$49.71 $79.60 $129.319%$129.31Appropriate discount <strong>rate</strong> forfixed costs, e.g., yields onlong-term corpo<strong>rate</strong> bondsAppropriate discount <strong>rate</strong>for operating income, e.g.,WACCDerived discount <strong>rate</strong> forrevenues that equates E to thesum of C and D in present valueterms22
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