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The practice of estimating the term structure of discount rates

  • Freeman, Mark C.
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    It is extremely difficult, in practice, to precisely estimate the term structure of discount rates for capital budgeting purposes. In this paper I argue that, with only minor adjustments to current standard practice, a corporate treasurer can determine a multi-period cost of capital that is both theoretically robust and likely to be sufficiently accurate for most practical purposes. For this to be the case, corporations should have a preference for using real, rather than nominal, discounted cash flow techniques.

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    File URL: http://www.sciencedirect.com/science/article/B6W4F-4TP49NH-2/2/3bb36d8d3e326185e84d5ad48f391773
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    Article provided by Elsevier in its journal Global Finance Journal.

    Volume (Year): 19 (2009)
    Issue (Month): 3 ()
    Pages: 219-234

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    Handle: RePEc:eee:glofin:v:19:y:2009:i:3:p:219-234
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620162

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    9. Constantinides, George M, 1982. "Intertemporal Asset Pricing with Heterogeneous Consumers and without Demand Aggregation," The Journal of Business, University of Chicago Press, vol. 55(2), pages 253-67, April.
    10. Vasicek, Oldrich Alfonso, 1977. "Abstract: An Equilibrium Characterization of the Term Structure," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(04), pages 627-627, November.
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    17. Fama, Eugene F., 1977. "Risk-adjusted discount rates and capital budgeting under uncertainty," Journal of Financial Economics, Elsevier, vol. 5(1), pages 3-24, August.
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