Study For The Calculation Of Discount Rate In Business Valuation With Income Approach

With Chinese economy market opening, thriving, and capital rating business constantly expanding, Enterprise Value Assessment occupies an important position in current capital rating business of China. With the rapid development of Chinese economy and the continued developing trend of world economy market, the enterprise’s economic activities are growing as it plays an important main role of the economy market.More, a series of frequent economic activity such as reconstructions, mergers and acquisitions, investments, extremely requires Enterprise Value Assessment.Also, the financial crisis out breaking from market shaking reflects that the current enterprise value can be wrongly estimated, which also need an independent third party to assess out a fair value of the enterprise value.Obviously, Enterprise Value Assessment plays a great role in contemporary socio-economy.In the Enterprise Value Assessment practice, the income approach’s use frequency is increasing due to its applicability expanding. And, the discount rate, which is a primary influence factor of the income approach, impacts the enterprise fair value significantly by the correct choice of its value.However, there are still many problems to determine the value in practice. Such as the widely used CAPM model for determining the equity discount rate, still has room to improve determining its parameters in practice. Reasonably determining discount rate has an important impact on the results of Enterprise Value Assessment.In fact, whether the discount rate is reasonable directly affects the fairness of assessed enterprise value.Therefore, this paper’s study about determining the discount rate contributes a lot theoretically and practically.The main purpose of this paper is, using analysis of the applicability of the method for determining the discount rate and the parameters identifying optimization in CAPM model, which is the common model used to determine discount rate, to assist the appraiser in practice to be more reasonable in determining the discount rates, and make more fair enterprise value assessments. The main contents of this paper are:The first part is an introduction to the research background, purpose, research methods and research content.The second part mainly explains the current theoretical study status of the discount rate in China, through summarizing and reviewing domestic literatures.The third part analyses and elaborates the theoretical basis, thus provides the theoretical foundation of this paper.The fourth part reviews the requirements of the discount rate to reflect respects should be considered when determining the discount rate in practice, analyses the methods of determining the discount rate in practice, and describes the applicability of methods of determining discount rate in china and the problems to pay attention when applied practically.The fifth part mainly focused on analyzing the CAPM model which is used frequently in practice.Also, by analyzing its applicability in our country as well as the situation of parameters determination under current practice, this part proposes an extended CAPM model and points out the part of the determination method which remains to be optimized.The sixth part continues to determine the parameters of CAPM model profitably, focusing on optimizing the market risk premium and the Beta Value.When dealing with determination of the market risk premium, this paper argues that, using the average rate of return of the same industry under the same board, or the difference of the Return On Equity and risk-free rate of several quoted companies, to determine the market risk premium, is a more reasonable way than using the stock index determining way. This part also determines the Beta value by fitting linear regression method to the market risk premium, and proves of the rationality and superiority of this optimization method by t test and goodness-of-fit test.The last part is a summary of this paper, and it reviews the main contribution of this paper and elaborates inadequacies.The main contribution of this paper is that, by studying and analyzing the nature of the discount rate, and combining the comparative study of determining the discount rate in assessment practice, with analyzing the status of the discount rate determination using CAPM model in practice,this paper determines and optimizes the parameters of the CAPM model,tests and verifies the optimized results, thus provides a more accurate assessment method to determine the discount rate, brings fairness to Enterprise Value Assessment.But there are still many shortcomings in this paper.First of all, due to the complexity of their own particular risks, the paper fails to propose a better improving method in determining enterprise specific risk.Furthermore, in the analysis of the market risk premium, the paper lacks theoretical analysis about Plate Risk.Finally, because there is a certain degree of difficulty to determine the discount rate of the target enterprise lacked reference enterprises, the optimal results acquired by this paper’s optimization methods may have limitations. Also, data sources in this paper may have errors and miscalculations.