Abstract
The typical assumption about cashflows in perpetuity is not appropriate in practical project appraisal because the length of project life is always finite. In this paper, I discuss the calculation of multiperiod financial discount rates for a project with a finite life. The impact of taxes and inflation will also be included in the analysis. First, we may assume that a constant debt-equity ratio is maintained during the life of the project. The loan schedule is constructed to keep the debt-equity ratio constant for the life of the project. Second, the loan schedule may be fixed. In this case, the debt-equity ratio changes over the life of the project. By explicitly calculating the appropriate discount rate for each period, it is not necessary to assume that the debt-equity ratio is constant and the cashflows are in perpetuity.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
