valuation_discount_rate
Discount & Capitalization Rates
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Construct discount and capitalization rates: build-up, CAPM, WACC, tax-amortization benefit, control premium, Finnerty DLOM, and currency/country-risk adjustment. Method selects the formula. Use to derive the rate that feeds every income-based method; build_up and capm estimate cost of equity, wacc blends debt and equity. For a cross-border rate with currency and country premia use method currency_adjusted; for the cash flows the rate discounts use valuation_time_value. Per method: build_up needs risk_free_rate + equity_risk_premium (optional: size_premium, industry_risk_premium, specific_risk_premium); capm needs risk_free_rate + beta + market_return; wacc needs equity_value + debt_value + cost_of_equity + cost_of_debt + tax_rate; tax_amortization_benefit needs discount_rate + useful_life + tax_rate + asset_value; control_premium needs minority_price + control_price; dlom_finnerty needs restricted_period + volatility + risk_free_rate; currency_adjusted needs base_rate (optional: currency_risk_premium, country_risk_premium). All rates and premiums are decimals; wacc requires both equity_value and debt_value, and dlom_finnerty volatility is an annualized decimal. Only method is required; all other parameters are method-dependent — supply those the selected method names and omit the rest (defaults apply where defined). Rates and premiums are decimals (0.10 = 10%). Pure arithmetic: no I/O and no external calls, rounded to 2 decimals; parameters belonging to other methods are accepted and ignored. An unknown method, or a missing method-required parameter, returns an error instead of a value.
Input schema
| Property | Type | Required | Description |
|---|---|---|---|
| method | string | yes | Formula to apply. Options: build_up = r = Rf + ERP + size + industry + specific premiums.; capm = r = Rf + beta * (Rm - Rf).; wacc = WACC = (E/V) Re + (D/V) Rd (1 - Tc).; tax_amortization_benefit = PV of the tax shield from amortizing the asset.; control_premium = (Control price - minority price) / minority price.; dlom_finnerty = Finnerty average-strike put option DLOM.; currency_adjusted = r = base rate + currency premium + country premium. |
| risk_free_rate | number | no | Risk-free rate as a decimal (0.04 = 4%). |
| equity_risk_premium | number | no | Equity risk premium as a decimal (0.06 = 6%). |
| size_premium | number | no | Small-size premium as a decimal (e.g. 0.03 = 3%). |
| industry_risk_premium | number | no | Industry risk premium as a decimal (e.g. 0.02 = 2%). |
| specific_risk_premium | number | no | Company-specific risk premium as a decimal (e.g. 0.03 = 3%). |
| beta | number | no | Systematic risk beta (market = 1.0). |
| market_return | number | no | Expected market return as a decimal (0.10 = 10%). |
| equity_value | number | no | Market value of equity E, in currency units. |
| debt_value | number | no | Market value of debt D, in currency units. |
| cost_of_equity | number | no | Cost of equity Re as a decimal (e.g. 0.12 = 12%). |
| cost_of_debt | number | no | Pre-tax cost of debt Rd as a decimal (e.g. 0.06 = 6%). |
| tax_rate | number | no | Marginal tax rate as a decimal (0.25 = 25%). |
| discount_rate | number | no | Per-period discount rate as a decimal (0.10 = 10%). |
| useful_life | integer | no | Useful life in years n (integer ≥ 1). |
| asset_value | number | no | Asset value the tax amortization benefit is computed on, in currency units. |
| minority_price | number | no | Minority (pre-control) share price or value, in currency units. |
| control_price | number | no | Controlling-interest share price or value, in currency units. |
| restricted_period | number | no | Restricted / marketability period in years t (≥ 0). |
| volatility | number | no | Annualized volatility sigma as a decimal (0.30 = 30%). |
| base_rate | number | no | Base discount rate before currency/country adjustment, as a decimal (e.g. 0.12 = 12%). |
| currency_risk_premium | number | no | Currency risk premium as a decimal (e.g. 0.02 = 2%). |
| country_risk_premium | number | no | Country risk premium as a decimal (e.g. 0.03 = 3%). |
Raw JSON schema
{
"type": "object",
"properties": {
"method": {
"type": "string",
"enum": [
"build_up",
"capm",
"wacc",
"tax_amortization_benefit",
"control_premium",
"dlom_finnerty",
"currency_adjusted"
],
"description": "Formula to apply. Options: build_up = r = Rf + ERP + size + industry + specific premiums.; capm = r = Rf + beta * (Rm - Rf).; wacc = WACC = (E/V) Re + (D/V) Rd (1 - Tc).; tax_amortization_benefit = PV of the tax shield from amortizing the asset.; control_premium = (Control price - minority price) / minority price.; dlom_finnerty = Finnerty average-strike put option DLOM.; currency_adjusted = r = base rate + currency premium + country premium."
},
"risk_free_rate": {
"type": "number",
"description": "Risk-free rate as a decimal (0.04 = 4%)."
},
"equity_risk_premium": {
"type": "number",
"description": "Equity risk premium as a decimal (0.06 = 6%)."
},
"size_premium": {
"type": "number",
"description": "Small-size premium as a decimal (e.g. 0.03 = 3%).",
"default": 0
},
"industry_risk_premium": {
"type": "number",
"description": "Industry risk premium as a decimal (e.g. 0.02 = 2%).",
"default": 0
},
"specific_risk_premium": {
"type": "number",
"description": "Company-specific risk premium as a decimal (e.g. 0.03 = 3%).",
"default": 0
},
"beta": {
"type": "number",
"description": "Systematic risk beta (market = 1.0)."
},
"market_return": {
"type": "number",
"description": "Expected market return as a decimal (0.10 = 10%)."
},
"equity_value": {
"type": "number",
"description": "Market value of equity E, in currency units."
},
"debt_value": {
"type": "number",
"description": "Market value of debt D, in currency units."
},
"cost_of_equity": {
"type": "number",
"description": "Cost of equity Re as a decimal (e.g. 0.12 = 12%)."
},
"cost_of_debt": {
"type": "number",
"description": "Pre-tax cost of debt Rd as a decimal (e.g. 0.06 = 6%)."
},
"tax_rate": {
"type": "number",
"description": "Marginal tax rate as a decimal (0.25 = 25%)."
},
"discount_rate": {
"type": "number",
"description": "Per-period discount rate as a decimal (0.10 = 10%)."
},
"useful_life": {
"type": "integer",
"description": "Useful life in years n (integer ≥ 1)."
},
"asset_value": {
"type": "number",
"description": "Asset value the tax amortization benefit is computed on, in currency units."
},
"minority_price": {
"type": "number",
"description": "Minority (pre-control) share price or value, in currency units."
},
"control_price": {
"type": "number",
"description": "Controlling-interest share price or value, in currency units."
},
"restricted_period": {
"type": "number",
"description": "Restricted / marketability period in years t (≥ 0)."
},
"volatility": {
"type": "number",
"description": "Annualized volatility sigma as a decimal (0.30 = 30%)."
},
"base_rate": {
"type": "number",
"description": "Base discount rate before currency/country adjustment, as a decimal (e.g. 0.12 = 12%)."
},
"currency_risk_premium": {
"type": "number",
"description": "Currency risk premium as a decimal (e.g. 0.02 = 2%).",
"default": 0
},
"country_risk_premium": {
"type": "number",
"description": "Country risk premium as a decimal (e.g. 0.03 = 3%).",
"default": 0
}
},
"required": [
"method"
]
}