NOW YOU KNOW HOW DISCOUNT RATES HAVE CHANGED

Our assessment of the EMRP has increased from 6.5% to 7.0%, whilst overall discount rates have generally declined primarily due to a significant decrease in the risk free rate.

Companies with a 30 June reporting deadline should have started preparing for impairment testing again. This update provides a quick look at how rates have moved since 30 June 2015.

Overall discount rates have reduced slightly since this time last year, indicating increased asset values and reduced risk of impairment (assuming cash flow forecasts and other relevant factors remain unchanged). The following chart shows little has changed in the key parameters required to assess discount rates.

Updated WACC movement

In relation to these parameters we note as follows:

  • Commonwealth Government bond yields have decreased significantly over the period.
  • The equity market risk premium implied by market trading increased over the period. As a result, we have increased our assessment of the equity market risk premium from 6.5% to 7.0%.
  • There was no material change to market gearing levels.
  • Credit spreads have increased slightly as corporate bond rates have not fallen to the same extent as risk free rates.

For further information on selecting an appropriate discount rate please feel free to contact us.