# Discount Rate Modifiers

This article explains how discount rates and discount rate modifiers work in Model Reef.

You will learn:

* How WACC and equity discount rates are used.
* How discount rates interact with model periodicity.
* How to adjust discount rates by scenario or risk factor.

Discount rates translate future cashflows into present values and have a strong effect on NPV.

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### Core discount rates

Model Reef uses two primary discount rates:

* **WACC (Weighted Average Cost of Capital)**
  * Used to discount FCFF.
  * Appropriate when valuing enterprise value.
* **Equity discount rate**
  * Used to discount FCFE.
  * Appropriate when valuing equity directly.

You set these in the valuation settings for each model or scenario.
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### Periodicity and discount factors

Discounting respects the model's time structure.

Rules:

* If the model is monthly, annual discount rates are converted to effective monthly rates.
* If the model is quarterly or yearly, discount factors are adjusted accordingly.
* If cashflows are irregular in time, date based discounting matches Excel XNPV style behaviour.

This keeps present value calculations consistent with the underlying period structure.
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### Discount rate modifiers

You can use **modifiers** to adjust discount rates for:

* Scenario specific risk premiums.
* Country or currency risk when modelling multiple regions manually.
* Project risk relative to the core business.
* Different investor required returns.

Typical patterns include:

* Starting from a base WACC or equity rate.
* Adding or subtracting a percentage for specific risk factors.
* Using different rates for separate valuation blocks or sensitivities.

Modifiers are usually implemented using driver or assumption variables that feed into the valuation settings.
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### Using discount rates in scenarios and sensitivity analysis

In practice you will often:

* Set a base discount rate in a central assumption library.
* Override it in specific scenarios to represent higher or lower risk.
* Run sensitivity cases where the discount rate varies by a few percentage points.

Model Reef then recomputes NPV, IRR and money multiple for each scenario using its discount rate configuration, allowing you to compare risk adjusted valuations.
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### Related articles <a href="#related-articles" id="related-articles"></a>

* [​Venue-Level Cost & Margin Modelling](/use-cases/hospitality-restaurants-cafes-bars/venue-level-cost-and-margin-modelling.md)
* [​Build a Unit Economics Model](/how-tos/operations-and-unit-economics/build-a-unit-economics-model.md)
* [​Model Level Permissions](/help/permissions-and-collaboration/model-level-permissions.md)
* [Entering Seasonality](/syntax/how-input-fields-work/entering-seasonality.md)


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