Thermodynamic Approach to the Discount Rate and Discounted Cash Flow Method
Current theories of the discount rate have a theoretical basis focused on risk; risk-free rate and risk premium. The basic component of the discount rate, the risk-free rate as purely empirical has a natural infirmity which consequently weakens the final theory. Similarly, the risk premium category...
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| Format: | Article |
| Language: | English |
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MDPI AG
2023-06-01
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| Series: | Risks |
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| Online Access: | https://www.mdpi.com/2227-9091/11/7/118 |
| _version_ | 1797587596327518208 |
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| author | Mieczysław Dobija Jurij Renkas |
| author_facet | Mieczysław Dobija Jurij Renkas |
| author_sort | Mieczysław Dobija |
| collection | DOAJ |
| description | Current theories of the discount rate have a theoretical basis focused on risk; risk-free rate and risk premium. The basic component of the discount rate, the risk-free rate as purely empirical has a natural infirmity which consequently weakens the final theory. Similarly, the risk premium category is not theoretically perfect. The fundamental shortcoming is that the theory of the discount rate does not relate to fundamental knowledge of capital and the natural rate of its potential growth. Therefore, the purpose of the discussion is to justify the discount rate structure with the constant of potential growth of capital; a = 0.08 [1/year] as the main component. It is proven that the theory of the discount rate is linked to the essence of time and the pace of its passage and is an essential component of the capital–labor–time triad. |
| first_indexed | 2024-03-11T00:41:09Z |
| format | Article |
| id | doaj.art-8b02f5a214ca4851b9e226250a458d5e |
| institution | Directory Open Access Journal |
| issn | 2227-9091 |
| language | English |
| last_indexed | 2024-03-11T00:41:09Z |
| publishDate | 2023-06-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Risks |
| spelling | doaj.art-8b02f5a214ca4851b9e226250a458d5e2023-11-18T21:14:42ZengMDPI AGRisks2227-90912023-06-0111711810.3390/risks11070118Thermodynamic Approach to the Discount Rate and Discounted Cash Flow MethodMieczysław Dobija0Jurij Renkas1College of Management Sciences and Quality, Cracow University of Economics, 27 Rakowicka St., 31-510 Cracow, PolandCollege of Management Sciences and Quality, Cracow University of Economics, 27 Rakowicka St., 31-510 Cracow, PolandCurrent theories of the discount rate have a theoretical basis focused on risk; risk-free rate and risk premium. The basic component of the discount rate, the risk-free rate as purely empirical has a natural infirmity which consequently weakens the final theory. Similarly, the risk premium category is not theoretically perfect. The fundamental shortcoming is that the theory of the discount rate does not relate to fundamental knowledge of capital and the natural rate of its potential growth. Therefore, the purpose of the discussion is to justify the discount rate structure with the constant of potential growth of capital; a = 0.08 [1/year] as the main component. It is proven that the theory of the discount rate is linked to the essence of time and the pace of its passage and is an essential component of the capital–labor–time triad.https://www.mdpi.com/2227-9091/11/7/118risk premiumcapitalthermodynamicsdiscount ratenatural constanttime flow rate |
| spellingShingle | Mieczysław Dobija Jurij Renkas Thermodynamic Approach to the Discount Rate and Discounted Cash Flow Method Risks risk premium capital thermodynamics discount rate natural constant time flow rate |
| title | Thermodynamic Approach to the Discount Rate and Discounted Cash Flow Method |
| title_full | Thermodynamic Approach to the Discount Rate and Discounted Cash Flow Method |
| title_fullStr | Thermodynamic Approach to the Discount Rate and Discounted Cash Flow Method |
| title_full_unstemmed | Thermodynamic Approach to the Discount Rate and Discounted Cash Flow Method |
| title_short | Thermodynamic Approach to the Discount Rate and Discounted Cash Flow Method |
| title_sort | thermodynamic approach to the discount rate and discounted cash flow method |
| topic | risk premium capital thermodynamics discount rate natural constant time flow rate |
| url | https://www.mdpi.com/2227-9091/11/7/118 |
| work_keys_str_mv | AT mieczysławdobija thermodynamicapproachtothediscountrateanddiscountedcashflowmethod AT jurijrenkas thermodynamicapproachtothediscountrateanddiscountedcashflowmethod |