Discount Rate Research

Thanks for the question. This is a topic that Michael covers more in-depth in course 2 (Lecture 2.3), so I’ll hold off on getting too much into the theory behind the discount rate.

But in practice, determining the appropriate discount rate is really quite simple. In most cases the discount rate simply represents the investor’s target return. And an investor’s target return is generally a function of that investor’s cost of capital (i.e. the cost of debt and the cost of equity) plus what the investor needs to earn to make transacting worthwhile.

Also, in the course 2 forum we had a discussion on discount rates you might find interesting. That thread is here:

https://www.adventuresincre.com/academy/forums/topic/npv-discount-rate/

Let me know if that clears up the confusion,

Spencer