tag:blogger.com,1999:blog-8152901575140311047.post3784545220702537649..comments2024-03-29T05:33:33.027-04:00Comments on Musings on Markets: Myth 4.3: The D cannot change (over time) in a DCFAswath Damodaranhttp://www.blogger.com/profile/12021594649672906878noreply@blogger.comBlogger1125tag:blogger.com,1999:blog-8152901575140311047.post-52822133960573004512018-08-25T05:51:06.123-04:002018-08-25T05:51:06.123-04:00Dear Sir,
I thought that different discount rates...Dear Sir,<br /><br />I thought that different discount rates for different time periods are necessary for an entirely different reason. One of the primary variable determining a discount rate is the probability of default. Since the uncertainty regarding a cash flow is likely to be higher in time periods farther into the future, I thought this should be reflected in the discount rates.<br /><br />As for the risk of a young company having a higher discount rate and this rate decreasing thereafter as it matures, my question is should the risk-class of the asset today be the only relevant factor as we have no idea that a young company will survive into a mature company.<br /><br />Is my understanding incorrect?<br /><br />Apologies for the clumsily framed query. Thank you. Sarathhttps://www.blogger.com/profile/05304995407374653410noreply@blogger.com