The alternative concept of cash flow discounting
Importance The scope of research encompasses discount rate and the specific features of its calculation and its practical application. Discount rate and discount operation itself accommodate a very important role in the process of cash flow estimation. Corporate finance, business appraisal, investment management and financial mathematics are the fields of knowledge, which actively use the "discount rate" term in describing their methodological instruments. After investigation of various Russian and foreign sources, I arrived at the conclusion that this term has a very concrete definition, but at the same time, there is no universal unambiguous methodology for discount rate calculation. On the contrary, in educational, research and practice-oriented periodical publications and sources, one can find a variety of methods of calculation and substantiation of discount rate and their variations, which entails certain consequences that are described in this article. Special attention in the article is paid to the variable discount rate component - a risk premium component. In contrast to risk-free return, it is interpreted in a quite free manner. That is why risk premium is prone to various kinds of manipulations. Objectives The paper aims to search for alternatives to the existing mechanism of discount rate application in order to obtain fair discount value for all transaction parties. In order to achieve this objective, I proposed and solved the following tasks: explore the modern concept of discount rate; review and classify methods of discount rate calculation; consider the recommended selection principles for different purposes; identify specific features of discount rate application as a case study of a particular existing company. The paper arrives to main conclusions about the modern principles of discount rate application, and also describes alternative ways of its determination. Methods In the research, I used such methods of knowledge and research as a method of creative search, system-oriented analysis, synthesis, classification, method of expert assessment, etc. Results The main findings include as follows: I have provided a classification of methods for discount rate calculation; described the specific features of discount rate application from the different point of views of transaction participants, and also proposed a new conceptual approach to discount rate definition and application. Conclusions and Relevance The idea that a fair discount rate based on risk-free return and risk premium model cannot be determined because premium component is very subjective, it depends on many factors, and it is always changing, is a key conclusion of the paper.