Determination Of Discount Rate In Income Method For Equity Valuation

With the development of socialist market economy and the activity of capital market in our country,the business valuation attracts more and more attention,which involves the overall enterprise valuation and the equity valuation.In this article,we focus on the equity valuation.income approach as one of basic methods of asset valuation,which results is the present price of the company's future earnings.as one of major parameters in income present value model,the discount rate has great influence on the final results of the assessment.Therefore,the ability of making appropriate determination on the risks of future earnings in order to select the proper discount rate,has become important issues we need to resolve in application of the income approach.In view of this,this article is to do some of the theoretical research and empirical analysis on the discount rate in the income method for equity valuation.on the basis of the capital assets pricing model(CAPM),This article focus on the central issue:how to determine the discount rate in equity valuation.We arrange four parts in this article by applying the logical order——"ask questions,analysis of problems,to resolve problems".The first part is the introduction on the background of the research,study reviews at home and abroad and this article's framework.The second part,as the main body of this article,is mainly based on CAPM model.The discount rate is divided into risk-free interest rate,market-related return and specific risk only with the company.Then,we present the problems faced and the solutions in detail including how to determine the risk-free interest rate,the risk degree of the company,the market risk premium and the company financial leverage.In the third part, we illustrate how to apply the aforementioned methods by using an actual equity valuation case,focusing on how to use the iterative method to estimate the company's future financial leverage.And the last part is a summary and outlook.In the-choice of methods,we use the methods of qualitative analysis and quantitative research in this article.Through qualitative analysis,the discount rate in equity valuation is defined and analyzed.On the basis of systematic introduction of CAPM model,we develop mathematical models to estimate the discount rate of equity valuation and apply a real case to explain how to use these measurement models.By applying mathematical models to measure the discount rate in equity valuation,the determination of risk reflects the characteristics of objective and scientific.