Double discounting

The double discounting is a calculation method from the investment calculation . It essentially corresponds to the capital value method . As with this, payments in and out of an investment project are realized through discounting . The double discounting should take into account the risk of the investment mathematically.

There are two approaches to this in the business literature:

• The first approach corresponds practically exactly to the net present value method, but a higher discount rate is used than that which would be used if there was no risk (compare also risk-free interest rate and credit spread ).
• The second approach is to discount each payment after discounting with the (risk-free) discount rate again with a second discount rate. The formula for the net present value would therefore be with annual surpluses E from an investment I:

${\displaystyle KW={\frac {E_{1}}{(1+z)(1+i)}}+{\frac {E_{2}}{((1+z)(1+i))^{2}}}+...+{\frac {E_{n}}{((1+z)(1+i))^{n}}}-I}$

z stands for the discount rate, i is the interest rate for the second discount, which is supposed to represent the risk.

In order for a risky investment to be equally attractive compared to an otherwise equally safe investment when using double discounting, it must promise higher surpluses.

Individual evidence

1. ↑ Guido Eilenberger : operational finance . 7th edition. Oldenbourg, 2003, ISBN 3-486-25535-5 , p. 183. [1]
2. ↑ Kay Poggensee: Investment calculation: basics - tasks - solutions . Gabler, 2009, ISBN 3-8349-1016-3 , p. 300. [2]
3. ↑ Hermann Witte: General Business Administration: Life phases of the company and operational functions . 2nd Edition. Oldenbourg, 2007, ISBN 3-486-58223-2 , p. 293. [3]