Discount Rate
Listed here are financial model templates which include the discount rate. The discount rate or cost of capital is used to discount future cash flows to their present value.

Telecom Financial Model presents the case of an already operating business in the telecom sector (mobile communications, internet and entertainment…

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3 statement 5 year rolling financial projection Excel model for a startup or existing business selling subscription content services or…

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3 statement 5 year rolling financial projection Excel model for a startup /existing business developing web/mobile apps

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Financial Modeling Tutorial guides user via step by step approach on how to build financial models with DCF valuation

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Financial model that performs a DCF valuation on Oil and Gas Exploration & Production Company.

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Project Finance Model is for the financing of long-term infrastructure projects and includes Funding & working calculations.

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Fully-Vetted Comprehensive SAAS Financial Model + Video Series + eBook

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Fully-Vetted Comprehensive eCommerce Financial Model + Video Series + eBook

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Fully-Vetted Comprehensive Coworking Financial Model + Video Series + eBook

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Highly versatile and user-friendly Excel model for the preparation a of 5-year rolling 3 statement (Income Statement, Balance Sheet and…

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Fully-Vetted Comprehensive Mobile App Financial Model + Video Series + eBook

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Toll Operations is a project finance model template for Toll Operating Company

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Wind Farm FM is a Project Finance Model for construction and operations of a Wind Farm

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Specific logic that pertains to starting a 3D printing business.

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Start Up Gym Club Financial Model presents the case of an investment in a gym, fitness club and its operations.…

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User-friendly 3 statement 5 year rolling financial projection Excel model for a startup or existing Consultancy business

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Start Up Nursery School Financial Model presents the case of an investment in a nursery school and its operations. The…

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Start Up Bar Business Financial Model presents the case of an investment in a bar business and its operations. The…

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Start Up Food Truck Business Financial Model presents the case of an investment in a food truck business and its…

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User-friendly 3 Statement 5 year rolling financial projection Excel model for a startup or existing Hotel business generating revenue from…

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The model presents an example of a Monte Carlo Simulation using excel to estimate the Net Present Value of an…

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Co-working Space Financial Model presents the case of an investment in the creation of a co-working space and its subsequent…

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Shopping Mall Financial Model presents the case of an investment into a shopping mall and its operation. The model generates…

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Highly versatile and user-friendly Excel model for the preparation of a rolling 3 statement (Income Statement, Balance Sheet and Cash…

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Highly versatile and user-friendly Excel model for the preparation of a rolling 3 statement (Income Statement, Balance Sheet and Cash…

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Get both Airport | Airline financial model templates in a bundle.

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Airline Operator Financial Model presents the case of a company operating an airline business. The model generates the three financial…

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Leveraged Buy Out (LBO) Model presents the business case of the purchase of a company by using a high level…

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User-friendly Excel model intended for the preparation of a Cost-Benefit Analysis to determine the financial viability for a proposed project…

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Online Shop Financial Model presents the business case of a brand new start up Online Shop with an upfront investment…

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The Discount Rate in DCF Analysis


As you already know, the discounted cash flow analysis or also known as the DCF Valuation makes use of a key metric such as the discount rate. As time passes by, the value of money tends to change which is mostly decreasing, thus, its purchasing power of income at a period in the future should be worth less compared today’s value. Hence, it is very important to take into account the time value of money when conducting a valuation which pretty much depends mostly on the projection of cash flows in the future.

Basically, the discount rate is the interest rate used in DCF analysis to determine the present value of the future cash flows. It also stands as the interest rate charged to banks and other financial institutions.

For example, we will use a DCF Valuation calculation table to determine the present value of the future cash flows by applying the discount rate.

Discounted Cash Flow Calculation
Discounted Cash Flow Calculation


Using the DCF formula:



The discount rate used here is the WACC which stands for as the average cost the business paid for capital from either borrowing or selling equity.

 

Calculating the Discount Rate - Using Weighted Average Cost of Capital Calculation


To calculate the discount rate, one must first determine what is the appropriate discount rate to use. Many businesses tend to use their Weighted Average Cost of Capital or WACC if its risk report is similar to that of the business, otherwise, the other option would be to use the Capital Asset Pricing Model (CAPM) as the discount rate instead.

 

To calculate the discount rate using the WACC, one will need to use the following formula:



Where:

Ke = Cost of Equity
Kd = Cost of Debt (average interest rate on business’ debt or use Book Value)
T = Corporate Tax Rate (marginal tax rate)
Ve = Value of Equity (business market cap – cash + debt)
Vd = Value of Debt (proxy is Book Value)

 

To calculate the discount rate using the CAPM, use the following formula:



Where:

Rf = Risk-free rate of return
B (Beta) = Sensitivity of the expected stock return to the market return or covariance of the historical return of a particular stock and the market divided by the variance of the market; B = Cov (Rs,Rm)/Var(Rm)
Rm = Market rate of return

 

Discount Rate Example Models


If you are looking for DCF Models and learn how to build one yourself, you can see it here: Discounted Cash Flow Models. If you want to learn more how to apply discount rate and how it works, we compiled a list of discount rate example models found above which are specifically designed for different industries and other use cases. These discount rate example models are using the weighted average cost of capital calculation mostly as the basis since it is the most use case when determining the discount rate.

These discount rate example models are ready-made by experienced financial modelers with a wide range of experience in financial modeling and industry know-how. So, the model itself will only need you to input the values according to your figures and customize the ranges or metrics according to your requirements. If you still need help with creating a custom model with discount rate applied, then we can also help you with that. Just feel free to provide us your specifications and we’ll draft you the model as well as give you a proper quotation.