Multiple Discount rates in NPV?
As financial models become more sophisticated users are starting to look at discounting the cash flows with multiple discount rates. However, we have noticed during our financial modelling training courses that this is often done incorrectly.
Below is a series of cash flows with different discount rates per year. The early years have higher discount rates as there is more risk in this period (let’s assume this is a construction phase).
The incorrect way to obtain the discount factor is shown in the first block.
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