The rate used to convert projected future cash flows to their present value in a discounted cash flow (DCF) analysis. The discount rate reflects the risk and opportunity cost associated with the investment. For small, privately held businesses, the rate typically falls in the 12-18% range, reflecting illiquidity, owner dependence, and other risk factors not present in publicly traded comparables. A higher rate produces a lower present value; a lower rate produces a higher present value. (Also see DCF, Terminal Value, Free Cash Flow.)
Financial Analysis
Discount Rate
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