Choosing the correct discount rate is crucial for accurate financial analysis. Here are some factors to consider:
Cost of Capital: Determine the company's cost of equity and debt to calculate the WACC. Risk Profile: Assess the risk associated with the investment. Higher risk projects typically warrant a higher discount rate. Market Conditions: Take into account current market interest rates and economic conditions. Company-Specific Factors: Consider the company's financial health, industry position, and growth prospects.