Common use of Establishment of the Discounting Rate Clause in Contracts

Establishment of the Discounting Rate. According to the principle of unifying the earning capacity and the discounting rate, the earning capacity is entity cash flow, so the discounting rate” r” will choose the weighted average cost of capital (WACC), i.e., the return on investment capital, also called investment capital cost, a comprehensive return rate decided by the structure and return rate of the shareholders’ equity capitals and interest-payment debenture capitals. The computing formula is: WACC = Ke*We+Kd*(1-T)*Wd Ke: Shareholders’ equity capital cost; Kd: debenture capital cost; We: the ratio of shareholders’ equity capital in the capital structure; Wd: the ratio of debenture capital in the capital structure; T: valid income tax rate of the company;