The practice of estimating the term structure of discount rates

Mark C. Freeman

Global Finance Journal, 2009, vol. 19, issue 3, 219-234

Abstract: 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.

Keywords: Capital; budgeting; Discounted; cash; flow; analysis; Cost; of; capital; Risk-free; rate; Real; analysis (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:19:y:2009:i:3:p:219-234

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