The discount rate is one of the most debated inputs in any valuation. In this session from his free online valuation class, Prof Damodaran explains what should (and should not) be counted as debt, how to estimate a company's cost of debt using ratings or interest coverage, and how to weight debt and equity to arrive at the cost of capital (WACC).
- Why lease commitments and other fixed obligations belong in debt
- Estimating default spreads when a company has no bond rating
- Using market values, not book values, to weight debt and equity
It builds on the Intrinsic Value – Foundation session in this section and is essential for anyone reviewing or building a DCF valuation, where small changes in the discount rate can move value significantly.