scholarly journals Selection of a discount rate for use in NRC regulatory analyses and application of discount rates to future averted health effects

1993 ◽  
Author(s):  
O.H. Paananen ◽  
P.L. Hendrickson
2011 ◽  
Vol 4 (1) ◽  
pp. 1
Author(s):  
Frieda A. Bayer

FASB has redefined the role of the accountant in employers accounting for pensions. This paper reviews the process through which the accountant defines and applies the settlement rate under SFAS 87. An example illustrates the potential impact on income and the balance sheet of alternative rates. SFAS 87 guidelines regarding acceptable rates are examined to demonstrate the degree of flexibility still existing in the selection of an appropriate discount rate.


Author(s):  
Dung Manh Tran ◽  
Khairil Faizal Khairi ◽  
Nur Hidayah Laili

This study presents some evidence of discount rate selection on goodwill impairment testing under the new requirements of FRS 36. The selection of discount rates is believed to be an important key factor that affects the outcome of impairment assessment, especially when using the method of value in use. This study objectively examines the Singapore listed firm’s selection of discount rates disclosed, and then tests and compares the variation between discount rates disclosed by firms for the goodwill impairment testing with independently generated estimates of firm specific risk adjusted discount rates for multi year samples of 2007, 2006 and 2005. In order to achieve the objective of this study, the Capital Asset Pricing Model (CAPM) is chosen because it describes the relationship between risk and expected return and that is used in the pricing of risky securities. For the purposes of this paper, the final research sample consists of 142, 127 and 86 firms that employed the value in use method in goodwill impairment testing and defined only a single discount rate in 2007, 2006 and 2005 respectively. The results show most of the firms understated their discount rates for 2005, while in 2006 and 2007 some firms overstated their discount rate when compared with an independently estimated risk adjusted discount rate. The results also indicate that the Singapore listed firms have difficulties in the discount rates disclosure which may in turn limit the decision usefulness of their financial disclosures by potentially diluting the robustness of the impairment testing.


Author(s):  
Lucia Gibilaro ◽  
Gianluca Mattarocci

<p>The workout approach to estimating the loss given default compares the actual value of the recovery flows with the exposure at default to measure the efficacy of the recovery process. One of the main problems related to this approach is the selection of the proper discount rate for evaluating the portfolio. In the literature, there are different solutions proposed, but there is no evidence on the impact of the choice of one of these alternatives on the LGD measurement. This paper looks at a proprietary database for the timeframe 1985-2005, evaluates the impact of the discount rate on the LGD value and studies the main determinants of LGDs computed using different approaches. Even if the explanatory variables are the same, LGDs defined using different discount rates show differences in the percentile distribution that could significantly affect the capital requirements of a financial intermediary.</p>


2017 ◽  
Vol 107 (2) ◽  
pp. 305-330 ◽  
Author(s):  
Robert E. Hall

Unemployment is high when financial discounts are high. In recessions, the stock market falls and all types of investment fall, including employers' investment in job creation. The discount rate implicit in the stock market rises, and discounts for other claims on business income also rise. A higher discount implies a lower present value of the benefit of a new hire to an employer. According to the leading view of unemployment—the Diamond-Mortensen-Pissarides model—when the incentive for job creation falls, the labor market slackens and unemployment rises. Thus high discount rates imply high unemployment. (JEL E24, E32, E44, J23, J31, J63)


1989 ◽  
Vol 3 (4) ◽  
pp. 181-193 ◽  
Author(s):  
George Loewenstein ◽  
Richard H Thaler

We examine a number of situations in which people do not appear to discount money flows at the market rate of interest or any other single discount rate. Discount rates observed in both laboratory and field decision-making environments are shown to depend on the magnitude and sign of what is being discounted, on the time delay, on whether the choice is cast in terms of speed-up or delay, on the way in which a choice is framed, and on whether future benefits or costs induce savoring or dread.


2020 ◽  
Vol 33 (4/5) ◽  
pp. 577-592
Author(s):  
Maxeem Georges

Purpose With timeliness and measurement of asset impairments as well as management opportunistic behaviour being topical, since the issuance of Australian Accounting Standards Board (AASB) 136, this study aims to examine whether assumptions about growth and discount rates made about asset recoverable amounts determine asset impairments. Design/methodology/approach This study uses a sample of 450 firm-year observations representing 133 Australian listed firms from 2015 to 2018. An estimation model is used where asset impairments is the dependent variable, growth and discount rates are the variables of interest and several impairment indicators are included as controls. Findings The results show that the decrease in growth rate but not the increase in discount rate affects the recognition of large asset impairments, where firms decrease the growth rate in the year of recognition. A change in discount rate affects asset impairments only when it is higher than the industry average. Hence, the growth rate is the management’s tool of choice in the recognition of asset impairments. Originality/value This study provides additional insight into how AASB 136 is used in practice. This includes investigating the tools used by firms in the calculation of asset recoverable amount and whether firms provide important information, as a part of disclosure. The results are of interest to investors and policymakers because they highlight the need for more restrictions around growth rate assumptions and less variation in disclosure.


2001 ◽  
Vol 17 (2) ◽  
pp. 236-243 ◽  
Author(s):  
David H. Smith ◽  
Hugh Gravelle

Objectives: Discounting of costs in health-related economic evaluation is generally regarded as uncontroversial, but there is disagreement about discounting health benefits. We sought to explore the current recommendations and practice in health economic evaluations with regard to discounting of costs and benefits.Methods: Recommendations for best practice on discounting for health effects as set out by government agencies, regulatory bodies, learned journals, and leading health economics texts were surveyed. A review of a sample of primary literature on health economic evaluations was undertaken to ascertain the actual current practice on discounting health effects and costs.Results: All of the official sources recommended a positive discount rate for both health effects and costs, and most recommended a specific rate (range, 1% to 8%). The most frequently specified rates were 3% and 5%.A total of 147 studies were reviewed; most of these used a discount rate for health of either 0% (n = 50) or 5% (n = 67). Over 90% of studies used the same discount rate for both health and cost. While 28% used a zero rate for both health and cost, in 64% a nonzero rate was used for both. Studies where the health measure was in natural clinical units (direct) were significantly more likely to have a zero discount rate.Conclusion: The finding that 28% of studies did not discount costs or benefits is surprising and concerning. A lower likelihood of discounting for benefits when they are in natural units may indicate confusion regarding the rationale for discounting health effects.


1991 ◽  
Vol 71 (4) ◽  
pp. 1133-1141
Author(s):  
R. P. Zentner ◽  
G. G. Bowes

The economic merit of controlling brush regrowth using combinations of 2,4-D and dicamba with different patterns of repeat applications was assessed for pastures in east-central Saskatchewan. Two experiments were conducted simultaneously in a community pasture located on a Waitville loam. The area, which was originally dominated by aspen poplar (Populus tremuloides Michx.), had been cleared of trees and shrubs by bulldozing before the start of the tests. In the first experiment started in 1981, 2,4-D ester plus dicamba and 2,4-D amine plus dicamba were foliar applied to the brush regrowth. Single applications were compared with repeat sprayings in the first, second, or in both years following the initial herbicide application. A subset of these treatments was used in a second experiment started in 1983 to determine whether or not productivity effects were influenced by growing conditions in the initial year of spraying. Herbicides effectively controlled brush regrowth which increased yields of useable herbage (grasses plus forbs) by an average of 32–39%. The forage benefits did not decline with time to the end of the study in 1989. Herbicide treatments were generally more profitable when applied to younger stands of brush regrowth, with the 2,4-D ester formulations being more profitable than 2,4-D amine formulations. Economic returns were highest, although not always positive, for the treatment receiving a one-time application of 2-4-D ester at 2.2 kg ha−1 plus dicamba at 1.5 kg ha−1 for forage values between $25 and $75 t−1 (dry weight) and discount rates between 0 and 10%. In order to justify this treatment cost, the minimum value that must be obtained when utilizing the additional forage was $20 t−1 (dry weight) for the most profitable control treatment, assuming a 5% discount rate and persistance of the treatment effects for up to 18 yr. For the other treatments, breakeven forage values ranged between $37 and 70 t−1 under similar assumptions. Higher discount rates or a shorter effective treatment life increased breakeven forage values. Repeat herbicide applications could not be justified under any of the economic scenarios. Key words: Net present value, benefit-cost ratios, discount rate, aspen poplar, herbicides, 2,4-D


2015 ◽  
Vol 22 ◽  
pp. 40 ◽  
Author(s):  
Sofie E. Miller

This paper examines the Department of Energy’s (DOE) reliance on low discount rates to estimate the benefits of its energy efficiency standards and uses existing literature on implicit consumer discount rates to calculate a range of benefits for DOE’s furnace fan rule. While DOE calculates large net benefits from its energy efficiency rule, using discount rates that better represent average consumer time preferences shows that this standard results in net costs. Furthermore, given the variation in consumer discount rates by income, this standard is effectively a transfer payment from low- and median-income households to high-income households.


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