Lecture 3: Discount Rates and Their Importance

Business & Economics - Lecture 3: Discount Rates and Their Importance - 10 slides

Explore Lecture 3: Discount Rates and Their Importance, covering In this lecture, students explored the fundamental role of discount rates in NPV calculations, including methods to.

Topics Covered

  • Introduction to Discount Rates in NPV
  • The Time Value of Money: A Fundamental Principle
  • Discount Rate Components and Determinants
  • Risk-Adjusted Discount Rates: Concept and Importance
  • Cost of Capital: Weighted Average Cost of Capital (WACC)
  • Methods to Determine Discount Rates
  • WACC: A Detailed Examination
  • CAPM: Risk and Return Relationship
  • Risk-Adjusted Rates: The Risk Premium Approach
  • Practical Applications of Discount Rates in NPV

References

  • Brealey, R.A., Myers, S.C., and Allen, F. (2020) Principles of Corporate Finance. 13th edn. New York: McGraw-Hill Education.
  • Ross, S.A., Westerfield, R.W., and Jaffe, J. (2019) Corporate Finance. 12th edn. New York: McGraw-Hill/Irwin.
  • Brigham, E.F., Ehrhardt, M.C. (2021) Financial Management: Theory & Practice. 16th edn. Boston: Cengage Learning.
  • Sharpe, W.F. (1964) 'Capital Asset Prices: A Theory of Market Equilibrium Under Conditions of Risk', Journal of Finance, 19(3), pp. 425-442.
  • Damodaran, A. (2012) Investment Valuation: Tools and Techniques for Determining the Value of Any Asset. 3rd edn. Hoboken: Wiley.
  • Graham, B. and Dodd, D.L. (1934) Security Analysis. New York: McGraw-Hill.
  • Modigliani, F. and Miller, M. (1958) The Cost of Capital, Corporation Finance and the Theory of Investment. American Economic Review.
  • Brealey, R.A., Myers, S.C., and Allen, F. (2020) Principles of Corporate Finance. 13th edn. McGraw-Hill Education.
  • Sharpe, W.F. (1964) Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk. Journal of Finance.
  • Fama, E.F. and French, K.R. (1993) Common Risk Factors in the Returns of Stocks and Bonds. Journal of Financial Economics.
  • Lintner, J. (1965) Security Prices, Risk, and Maximal Gains from Diversification. Journal of Finance.
Browse all lectures