Discount rate..

This query is : Resolved

Guest

Guest (Querist)

13 June 2012 How is discount rate determined by the company? Do they take RBI specified borrowing rate or the bank's rate where they transact.

Sanjay Chauhan (IFRS)

Sanjay Chauhan (IFRS) (Expert)
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14 June 2012 Discount Rate is used for various puposes in accounting example Impairment, Fair value, IRR of project, etc..

FOr all the puposes, there are different approaches.

Hence to reply, need to know for waht purpose discount rate is being used.

Guest

Guest (Querist)

14 June 2012 Say for Impairment and capital budgeting project.

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Guest

Guest (Querist)

14 June 2012 Say for Impairment and capital budgeting project.

Sanjay Chauhan (IFRS)

Sanjay Chauhan (IFRS) (Expert)
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14 June 2012 for impairment it is based on Weighted Average cost of Capital (WACC). This includes working out the debt Equity mix of the company and then say for example equity is 3 and debt is 7. they become weights for the average. Apply these weights to the cost of equity and cost of debt to arrive at WACC.

(Cost of equity is again a formula ie Risk free rate * beta.)

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