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The practice of estimating the term structure of discount rates

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  • Freeman, Mark C.

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.

Suggested Citation

  • Freeman, Mark C., 2009. "The practice of estimating the term structure of discount rates," Global Finance Journal, Elsevier, vol. 19(3), pages 219-234.
    • Handle: RePEc:eee:glofin:v:19:y:2009:i:3:p:219-234
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    Cited by:

    1. Ali Naef Mohammad, 2016. "Valuation Tools for Determining the Value of Assets: A Literature Review," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 6(4), pages 63-72, October.
    2. Freeman, Mark C., 2009. "Yes, we should discount the far-distant future at its lowest possible rate: a resolution of the Weitzman-Gollier puzzle," Economics Discussion Papers 2009-42, Kiel Institute for the World Economy (IfW Kiel).

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