Discount Rate Construction

Discount Rate Construction

Building appropriate discount rates for intangible asset valuation. Implemented in intangible_valuation.core.discount_rates.

Build-Up Method

Formula: r = Rf + ERP + Size Premium + Industry RP + Specific RP

Appropriate for private companies where beta is unavailable.

from intangible_valuation.core.discount_rates import build_up_discount_rate
rate = build_up_discount_rate(
    risk_free_rate=0.04, equity_risk_premium=0.06,
    size_premium=0.02, industry_risk_premium=0.01, specific_risk_premium=0.03,
)
# 16.00%

Book Reference: Chapter 2, Section 2.7

CAPM

Formula: r = Rf + β × (Rm - Rf)

from intangible_valuation.core.discount_rates import capm_discount_rate
rate = capm_discount_rate(risk_free_rate=0.04, beta=1.2, market_return=0.10)
# 11.20%

WACC (Weighted Average Cost of Capital)

Formula: WACC = (E/V) × Re + (D/V) × Rd × (1 - Tc)

from intangible_valuation.core.discount_rates import wacc
rate = wacc(equity_value=700, debt_value=300, cost_of_equity=0.12, cost_of_debt=0.06, tax_rate=0.25)
# 9.75%

Tax Amortization Benefit (TAB)

Formula: TAB = Asset Value × Tax Rate × [1 - (1+r)^(-n)] / (r × n)

DLOM (Finnerty Model)

Average-strike put option model for discount for lack of marketability.

Control Premium

Formula: CP% = (Control Price - Minority Price) / Minority Price

MCP Tools

build_up_discount_rate, capm_discount_rate, wacc, tax_amortization_benefit, dlom_finnerty, control_premium, currency_adjusted_discount_rate