Defining a discount rate to use

Question 1

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

Answer 1

The riskiness of the investment project

Question 2

You can figure out a discount rate to work with by

Answer 2

Using the WACC

Question 3

You can also find the discount rate by working with

Answer 3

Industry/sector standards

Question 4

Another way to find a working discount rate is by

Answer 4

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

Question 5

The WACC

Answer 5

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

Question 6

Often times industry standards can

Answer 6

Help deduce a suitable discount rate using their aggregate WACC

Question 7

The build up method

Answer 7

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

Question 8

Examples or risk premia are

Answer 8

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