Among the key points of the successful implementation of the business plan is the calculation of the discount rate.Very often customers of the business plan have a vague idea about the importance of this parameter, and sometimes do not understand why it should count.
Discounting - a calculation of the cash flows that relate to the future time.In other words - the definition of future income at the moment.
discount factor makes it possible to estimate the investment risk and the time factor.Time for any project is an important critical factor, because the funds are received at the moment, are preferred over the money, which are expected in the future period.After all, "today" means you can save or invest and get a percentage of income.
order to determine the time period of the project, you should first set the limit on the date of its completion, the expected number of years (days or months) after which the project will be deemed technically unacceptable.Until that date, limited, for example, the useful life of equipment, the project will be able to make a profit.The correct installation of time limits is important, as is evident in the calculation of future costs and benefits in the business plan.Lengthening or shortening of the project determines the time range in which the accrual of expected costs and revenues.Therefore, the estimated duration of the project is to be realistic, regardless of how much it will increase or decrease its attractiveness.
Value for money considering obtaining future revenue directly included in the analysis of the attractiveness of the project.For this purpose, calculated as a discount factor of financial flows.Such an analysis makes it possible to estimate the flow of costs and benefits throughout the life cycle of the project, reflecting the specific financial flows for each fixed period of time (usually a year, month, or five years).This is a reflection of the costs and benefits for the whole period of the life cycle has a number of advantages that lie in the fact that you can clearly identify the main factors influencing the structure of financial flows.This may be the level of inflation, changes in prices and the uncertainty or risk.
When people talk about the discount rate in addition to often mention the discount rate.In economic terms, it is the rate of return on invested capital.In other words, the discount rate makes it possible to calculate the amount of investments to date for the expected income in the future.Therefore, its value has a significant impact on the most important (key) solutions.Often, in order to calculate the discount rate as the discount takes the value of the interest rate.However, between these concepts there is a slight difference.
interest rate - is the annual fee for the loan, expressed as a percentage.The payment of such takes place at the time to repay the loan.If, for example, take the USD 1000 for the year and the interest rate is 20%, then at the beginning of the period the bank will issue at hand USD 1000, but by its end will need to return to USD 1000, together with interest on the loan (200 USD), total - 1200USD.
discount rate can also serve to express the value of the loan, but in this case the amount of the loan is reduced by the amount of interest on it.If the bank offers to issue a loan of $ 1,000 USD per year discount rate of 20%, the arms issued 800 USD, and at the end of 1000 will need to return the USD.
So, discounting the future is to bring the amount of money to the value of the current date, by reducing them to each predetermined period of the project.
calculation of the discount rate by the formula :
Kd - the discount rate,
i - the discount (interest) rate,
n - ordinal number of the period.For example, for the first year of it is equal to 1, for a fifth - 5.
