What Is The Principal Rate?

The rate of capitalization is the ratio of the future perpetual expected return to the present value.

Determination of principal rate

Generally speaking, the discount rate selected in asset appraisal should be compatible with the expected rate of return of a specific subject under realistic constraints. According to the specific circumstances, the following methods are adopted:

. determining the discount rate according to the average profit rate of the industry or enterprise.

Determining discount rate by weighted average cost of capital

Determining discount rate by weighting the risk interest rate at a safe interest rate.

Factors that should be taken into account in the measurement of goodwill value

The ratio of the capital rate is the ratio of the goodwill assets to the expected income, and the discount rate of the expected return of goodwill into the present value. In the measurement of the value of goodwill, four factors should be taken into consideration.

First, we should restructure the average profit margin of the enterprises.

The two is to restructure the risk return rate of enterprise operation.

The three is to restructure corporate finance.

The four is to restructure the risk return rate of enterprises.

Discount rate and capitalization rate

(1) to determine the discount rate, we should first make clear the discount. connotation 。 As a concept of time priority, discounting considers that the benefits or benefits will be lower than the same gains or benefits now, and systematically reduce the value with the degree of the delay in the time of the proceeds.

(2) the discount rate itself is the rate of return under a specific condition, indicating the level of return that the asset acquires. The higher the yield, the lower the asset valuation value. Because in the case of certain income, the higher the rate of return, the higher the rate of appreciation of the unit assets and the lower the value of assets owned by the owners.

(3) discount rate is not exactly the same as interest rate. Interest rate is the reward of capital and discount rate is the reward of management. Interest rate represents only the profitability of assets (funds), but is not directly related to the occupants and usage of the assets, and the discount rate is related to the assets and the effect of owners' use. The discount rate should include risk-free interest rate risk return rate and inflation rate. The risk-free interest rate refers to the profit level of assets under the general conditions, and the risk return rate refers to the ratio of remuneration and assets acquired by risk. Each asset investment is different because of its different use conditions and different industries, so the discount rate is different.

(4) attention should be paid to the selection of discount rate. Profit The amount of calculation is consistent with the caliber of the discount rate.

(5) the principal rate and the discount rate. essence There is no difference. Just use different occasions. The discount rate is the ratio of the future expected value of the limited period to the present value, which is used to restore the limited expected return. The principal rate is the ratio of the future perpetual expected return to the present value.