Quote:
Originally Posted by asquare
user_name, it's not standard practice (certainly not in graduate level or research economics; it is a simplifying assumption in undergrad courses). The cost of borrowing is a function of the supply and demand for money on international markets. The discount rate is about impatience. And including it is a standard calculation. The interest rate is simply not the same thing. I'm sorry, I don't think I can make this any more clear.
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It's standard practice in corporate finance. In other words, it's what financial managers do. It's the best thing they can do. The theory is surely nice, but I doubt that you could ever figure out the subjective discount factor of
the OP. I doubt that anybody can. So I went for the next best alternative: an approximation.