Uses and Abuses of Discount Rates: A Primer For The Wary


Research Organisation
Long Finance

Report Date
Nov. 9, 2015

Release Date
Sept. 25, 2015

Document summary

Long Finance research seeks to explore the concept of discount rates, their use and implications over time. The research on this topic has involved a variety of people over the years, most notably Dr Nick Goddard, Arjuna Sittampalam, and Michael Mainelli. Discounted cash flow (DCF) and net present value (NPV) analyses have long been part of the financial analyst's toolbox. In order to use both tools we need to decide on a discount rate and use that discount rate in some exponential equations. Exponential equations lead in turn to infinities and are thus inherently problematic in a constrained world. The use of discount rate tools leads to conflict in values over time. Realising the misconceptions and perceived complexity surrounding the concept of discount rate, Dr Nick Goddard volunteered to provide an overview of discount rates. "Uses and Abuses of Discount Rates: A Primer for the Wary" was published as a free-to-download Long Finance publication in September 2015.