"Let’s dig into the technical part of calculating the net present value. "This requires **determining a discount rate in relation to the risk of the analyzed investments**. For example, investing in miners is risky because a lot of things can go wrong when developing and operating a mine from technical, political, natural, and labor issues just to mention a few. Therefore, the mining industry will always carry a high discount rate and when using a discount rate, a proper value investor should go as high as 20% to calculate the NPV. On the other hand, if things go right, the technical reports from mine projects give an accurate estimation of future cash flows. For investments like blue chip companies or businesses with a moat, a lower discount rate can be used, and **the general way to do that is to add a stock risk premium to the 10-year Treasury yield**. As the Treasury yield can be considered riskless, by adding a few percentage points, you get to a good expected return from stocks. The average equity premium has been between 1.2% (1999) and 6.45% (1979). Again, to be conservative it is better to use the higher end of that range." ([Location 2466](https://readwise.io/to_kindle?action=open&asin=B07CNFFJ9J&location=2466)) --- **Tags** -- [[quotes]], [[valuations]], [[net-present-value]], [[cost-of-capital]], [[investments]], [[value-investing]] **Source** -- [[202506221723 - LN - Modern Value Investing]]