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2021 | OriginalPaper | Chapter

Discount Rates

Authors : Marc C. Hübscher, Björn Heidecke

Published in: Intangibles in the World of Transfer Pricing

Publisher: Springer International Publishing

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Abstract

The discount rate is a crucial factor for valuing intangibles and needs to be considered in most of the approaches described. This chapter outlines how the discount rate can be calculated. In particular, it explains how the weighted cost of capital (“WACC”) is determined. WACC is typically applied when discounting cash flows with DCF models. The CAPM model is used to calculate the cost of equity, which along with the cost of debt is required to calculate the WACC.

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Footnotes
1
See Dörschell et al. (2010, p. 5).
 
2
For the valuation of intangibles, unless the intangibles are suitable as collateral for borrowing, the debt part should be set to 0.
 
3
If the interest on debt is tax deductible, it is taken into account with (1-t).
 
4
For the sake of completeness, it should be pointed out that other approaches for determining equity returns are also discussed in valuation theory, such as the Build-up model, the Fama-French model, ICC model, and Arbitrage Price Theory (APT), but these are actually rarely used in corporate valuation theory and practice; at least beyond the USA. Consequently, for further analysis of these approaches refer to relevant valuation literature such as Pratt and Grabowski (2010) or Brealey et al. (2013).
 
5
See FAUB, references p. 1, (June 29, 2013).
 
6
See Ernst et al. (2010, p. 58).
 
7
See Fischer et al. (2012, p. 365).
 
8
See Perridon and Steiner (2007), Mandl and Rabel (1997).
 
9
See Perridon and Steiner (2007).
 
10
See Drukarczyk and Schüler (2009, p. 209).
 
11
See Heining (2009, p. 149).
 
12
See Ernst et al. (2010, p. 51).
 
13
See Ernst et al. (2010, p. 51).
 
14
See Damodaran (2013, p. 25), May 25, 2013.
 
15
See Heining (2009, p. 149).
 
16
For a review of various studies, see Drukarczyk and Schüler (2009, pp. 221–222).
 
17
See Dörschell et al. (2009, p. 91).
 
18
See Fachausschuss für Unternehmensbewertung und Betriebswirtschaft (2013).
 
19
See Ernst et al. (2010, p. 59).
 
20
Derivation of the beta factor is basically accepted in theory and practice. However, it is controversial what risk should be assigned to debt providers. From a theoretical perspective it is reasoned that providers of debt should be assigned more risk, which contradicts what is called debt beta in the theory. See Handbuch Wirtschaftsprüfung II.
 
21
See Dörschell et al. (2009, p. 144).
 
22
See Brealey et al. (2013, p. 226).
 
23
See Ernst et al. (2010, p. 65).
 
24
See Ernst et al. (2010, p. 74).
 
25
See Pankoke and Petersmeier (2009, p. 129).
 
26
For in-depth information on this see Pankoke and Petersmeier (2009, pp. 129–132).
 
27
See Dörschell et al. (2010, p. 55).
 
28
See Ernst et al. (2010, p. 75).
 
29
For reasons of simplicity in corporate practice a constant WACC is often estimated, assuming a constant capital structure that does not conform to the variable enterprise-specific financial risk and only permits an approximate assessment of the capital risk.
 
30
See Kuhner and Maltry (2006, pp. 254–256).
 
31
See Enzinger and Kofler (2011, p. 3).
 
32
See Hölscher and Helms (2013, p. 27).
 
33
In corporate practice this is normally referred to as the roll-back method.
 
34
See Schacht and Fackler (2005, p. 219).
 
Literature
Brealey, R., Myers, S., & Allen, F. (2013). Principles of corporate finance (11th ed.). New York: McGraw-Hill.
Dörschell, A., Franken, L., & Schulte, J. (2009). Der Kapitalisierungszinssatz in der Unternehmensbewertung. Praxisgerechte Ableitung unter Verwendung von Kapitalmarktdaten. Dusseldorf: s.n.
Dörschell, A., Franken, L., & Schulte, J. (2010). Kapitalkosten 2010 für die Unternehmensbewertung. Praxisgerechte Ableitung unter Verwendung von Kapitalmarktdaten. IDW: Dusseldorf.
Drukarczyk, J., & Schüler, A. (2009). Unternehmensbewertung (6th ed.). Munich: Vahlen.
Enzinger, A., & Kofler, P. (2011). Das Roll Back-Verfahren zur Unternehmensbewertung. Bewertungspraktiker. BewP, 4(2011), 2–10.
Ernst, D., Schneider, S., & Thielen, B. (2010). Unternehmensbewertungen erstellen und verstehen. Ein Praxisleitfaden. Mit Begleit CD-Rom. 4th revised ed. Munich: Vahlen.
Fischer, M., Möller, K., & Schultze, W. (2012). Controlling. Schäffer Poeschel, Stuttgart.
Heining, B. (2009). Funktionsverlagerung ins Ausland. Eul, Cologne.
Hölscher, R., & Helms, N. (2013). Entity- und Equity-Verfahren bei autonomer Finanzierungsstruktur. Band Band 17 Studium zum Finanz-, Bank- und Versicherungsmanagement, 1–49.
Kuhner, C., & Maltry, H. (2006). Unternehmensbewertung. Berlin: Springer.
Mandl, G., & Rabel, K. (1997), Unternehmensbewertung. Eine praxisorientierte Einführung. Überreuter, Wien.
Pankoke, T., & Petersmeier, K. (2009). Der Zinssatz in der Unternehmensbewertung. In Praxishandbuch Unternehmensbewertung, Gabler, 107–137.
Perridon, L., & Steiner, M. (2007). Finanzwirtschaft der Unternehmung (14th ed.). Munich: Vahlen.
Pratt, S., & Grabowski, R. (2010). Cost of capital applications and examples (4th ed.). New York: Wiley.
Schacht, U., & Fackler, M. (2005). Praxishandbuch Unternehmensbewertung. Wiesbaden: Gabler.
Metadata
Title
Discount Rates
Authors
Marc C. Hübscher
Björn Heidecke
Copyright Year
2021
Publisher
Springer International Publishing
Book
Intangibles in the World of Transfer Pricing

Print ISBN: 978-3-319-73331-9

Electronic ISBN: 978-3-319-73332-6

Copyright Year: 2021

DOI
https://doi.org/10.1007/978-3-319-73332-6_21

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