Assessing the non-financial investment profitability with variable discount rate

Katarzyna Gwozdz ()
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Katarzyna Gwozdz: Wroclaw University of Technology

No 16/2015, Working Papers from Institute of Economic Research

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.

Keywords: the cost of equity capital; risk premium; CAPM (search for similar items in EconPapers)
JEL-codes: G11 G31 G32 (search for similar items in EconPapers)
Date: 2015-03, Revised 2015-03
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