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Assessing the non-financial investment profitability with variable discount rate

Author

Listed:
  • Katarzyna Gwozdz

    (Wroclaw University of Technology)

Abstract

In the work, the subject of the discount rate assessment is presented. It is crucial as regards assessing the non-financial investment profitability. The discount rate is usually considered as constant one in the whole investment period, which seems to be the main problem. The constant discount rate does not take into account the actual money loses value in time. Moreover, the discount rate elements can change in time and it should be remembered that many factors, which also could change, influence the value of those elements. In the work, the results of conducted research are presented and they confirm that the assumption of using the constant discount rate is erroneous. The possibility of using different techniques of risk premium valuation is also mentioned. The research allows to select the risk premium valuation to assess the non-financial investment profitability which has been characterized as long-term one.

Suggested Citation

  • Katarzyna Gwozdz, 2015. "Assessing the non-financial investment profitability with variable discount rate," Working Papers 16/2015, Institute of Economic Research, revised Mar 2015.
    • Handle: RePEc:pes:wpaper:2015:no16
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    More about this item

    Keywords

    the cost of equity capital; risk premium; CAPM;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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