Choice of an appropriate discount rate, Financial Accounting

Assignment Help:

Choice of an appropriate discount rate

The difficulty with selecting a discount rate rests on whether the correct rate for the risk/return has been derived. A number of things are relevant here

- The place of the Water Authorities as single customer. The business is possibly at risk if the Water Authorities choose to look in another place for their water supplies. This may signify that a higher discount rate is more appropriate

- The funding of the capacity expansion. This may have an force on the discount rate if the debt/equity mix of the company is significantly altered. A number of things are relevant here

(a) Higher gearing is probable to induce higher costs of equity

(b) Higher equity financing may decrease the cost of equity, but increase the overall WACC if we move off our minimum WACC.

- a lower discount rate may perhaps be more appropriate to the extent that a long term contract implies secure income streams

- Different components of the cash flows may possibly have different variability and it may thus not be appropriate to discount them all at the same rate.


Related Discussions:- Choice of an appropriate discount rate

Evaluating the investment using return on capital employed, Evaluating the ...

Evaluating the investment using return on capital employed: Annual depreciation charge = 1500000/5 = $300000 Average investment = 1500000/2 = $750000 Average annual

Equity, How do you report a note in exchange for treasury stock

How do you report a note in exchange for treasury stock

Premium coupons , premium coupons that already have been expired should be ...

premium coupons that already have been expired should be or shouldn''t be estimated as liability?

Determine the net cash provided by operating activities, Van Aalst Company'...

Van Aalst Company's comparative balance sheet and income statement for last year appear below: Comparative Balance Sheet

Preference share capital in subsidiary-group accounts, Preference share cap...

Preference share capital in subsidiary (irredeemable) Investment in preference shares does not lead to ownership and therefore, if the holding company owns part of the preference

Significant findings or issues, Significant Findings or Issues - Substanti...

Significant Findings or Issues - Substantive matters which are vital to procedures performed, conclusions reached or evidence obtained and include though aren't limited to: 1.

Bill Receivable, What is the function of bill receivable? What is the meani...

What is the function of bill receivable? What is the meaning of bill receivable?

Case law & study, I need help with a mini accounting project. Here is a lin...

I need help with a mini accounting project. Here is a link to the questions I need answers to. Read the questions and instructions and if you think you can complete the case within

Business during year, No.         Account Title                         ...

No.         Account Title                                                                                     Debit                     Credit 101         Cash . . . . .

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd