© 2011 Sixhills Consulting LtdThe rate at which future cash flows are discounted reflects the level of risk involved in the investment and so the expected return (the ‘opportunity cost of capital’). Although our earlier example used the bank interest rate, this rate is only applicable for cash flows with the same risk as bank depositse.g., Money in banke.g., Biotechnology projectLow riskHigh riskDiscount rate(r)LOWsay, 5%Discount rate(r)HIGHsay, 35%P7IT Commercial Skills Development - Part 1
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