The discount rate is the percentage of the future rate discounted to the present value expressed as a percentage per year. Even if you increase the cash you have at risk-free rate, the amount of principal will certainly increase, such as one year, five years later. But if inflation goes on rapidly, that will not happen. So the current money can not be said to be the same value as future money. Certain calculations are needed to convert future money into current value. In M & A, the DCF method is usually used as an income / expenditure calculation method to predict the long-term investment effect for a specific company, but at this time it is necessary to set a discount rate. Regarding the discount rate at the time of sale of the company in M & A, when calculating the business value, the cash flow as the financial flow circumstances within each enterprise company is clarified, and when applying the discount calculation, it deals with compound interest . It is common for business plans in the relevant company to be created and deployed for five to six years, but companies subject to evaluation are evaluated on the premise that various business activities after that will continue We adopt form added to standards.
It is common to use the weighted average cost of capital (WACC) as the discount rate
We use “WACC” which is called the weighted average capital cost for the discount rate to calculate usual corporate value. WACC is calculated by weighted average of shareholders’ equity cost and liability capital cost. The profit level that is recorded in the final fiscal year as the usually expected business year will be influenced by the value of the company’s sale by the long-term business plan including future prospects. So we will provide a discount rate as an accurate forecast that we have to consider in developing our business plan. And it will develop as a system where goals and hopes enter in impossibly close circumstances. The content of the discount rate will be calculated theoretically in a manner that develops according to the direction of M & A. For cases of probability adjustment developed like this, cases that are difficult to deal with are frequent, so it is more complicated than other methods. So, for recalculation it is necessary to have a grace period and experienced counselor intervention.