Cash flows can be assessed and reduced to one point in time on a nominal or real basis.

Nominal cash flows and premium rates. Nominal cash flows - These are monetary amounts expressed in prices that change due to inflation, i.e. payments that will actually be paid or received at various future points (intervals) of time. When calculating them, the constant increase in the price level in the economy is taken into account, and this affects the monetary assessment of the costs and results of making an investment decision (Fig. 3.3).

For example, having decided to implement a project to open a mini-bakery for baking and selling bakery products, we must take into account the projected increase in prices for bread, flour, etc. when calculating expected cash flows. over the life of the project and index cash flows accordingly increasing coefficient.

Rice. 3.3.

Nominal rate of alternative (required) return is the rate that actually exists in the market for investment decisions of a given level of risk. During periods of high inflation, such rates increase in order to compensate investors for losses from inflationary price increases through increased income. On the contrary, nominal rates are relatively low during periods of price stabilization. Based on this, these rates are said to include inflation premium.

Real cash flows and real discount rates. Real cash flows - These are flows expressed at a constant price scale in effect at the time the investment decision is justified. Thus, they are assessed without taking into account inflationary price increases (Figure 3.4). However, cash flows must still be indexed by a decreasing or increasing factor if they (or their individual elements) grow faster or slower than inflation.

Rice. 3.4.

The real rate of alternative (required) return - This is the rate “cleared” of the inflation premium. It reflects the part of the investor's income generated in excess of compensation for inflationary price increases.

Real rate (g) calculated by the formula

Where gr - real rate; G - nominal rate; To - inflation rate. All rates are expressed in fractions of a unit.

Example. The bank interest rate on deposits is 6%, and inflation during this period is expected to be 10%. What is the real rate of return offered by the bank?

Real cash flows are discounted at real rates, nominal - at nominal rates.

The basic calculation rule is that:

• o real cash flows should be discounted at real alternative rates of return;
• o Nominal cash flows should be discounted using nominal discount rates.

Thus, there are two approaches to estimating cash flows, each of which has its own pros and cons.

Advantages and disadvantages of the valuation method in constant (fixed) prices. The advantage of an assessment on a real basis is that with an aggregated calculation of cash flows there is no need to predict future inflationary price increases - it is enough to know the current level of inflation and prices in force in the current period. At the same time, to carry out such a calculation, it is necessary to more or less strictly fulfill the following hypothesis: all prices for products, raw materials, materials, etc., accepted when determining cash flows, change in the same proportion in accordance with the level of inflation in the economy. Another “minus” is that with this approach, difficulties arise in analyzing project financing systems (interest rates on loans provided to implement an investment decision must also be adjusted to real rates, which creates distrust in the calculation results on the part of creditors). For example, they give money at 14% per annum, but the real rate appears in the calculations - 4%. In addition, the project budget drawn up on a nominal basis looks more realistic.

Let's look at the principle approach to valuation on a real and nominal basis using an example.

Example. The company manager assumes that the project will require investments of 350 million rubles. and in the first year of implementation will give a cash flow of 100 million rubles. In each subsequent year for five years, cash flow will increase by 10% due to inflationary increases in product prices and costs. In the sixth and final year, a total cash flow of 123 million rubles will be received from the sale of equipment. It is necessary to determine whether a given project is profitable if the nominal alternative rate of return is 20% per annum.

The cash flow for the project, taking into account inflationary growth, is shown in table. 3.6.

TABLE 3.6.

Net present value is calculated as follows:

YRU> Oh, that means the project is profitable.

We will evaluate the same project on a real basis. The real alternative rate of return is calculated using the formula

According to the condition, only inflationary price increases are expected. Therefore, the subsequent cash flow until the sixth year will be stable and equal to 100: 1.1 = 90.91 million rubles. The cash flow of the last year, calculated on a constant price scale, is equal to

As you can see, both methods gave almost the same result, which is explained by the same assumptions laid down in the example conditions for both approaches (the discrepancies are associated with the approximation error allowed in the calculations).

Index funds allow you to earn income from investing in the stock market completely passively. For example, if you invest in a fund based on the S&P 500 index, your money will be invested in the overall market, and you won't have to worry about how to manage your money or whether to sell or buy shares of certain companies. All these points will be managed by the fund, which forms its investment portfolio depending on the state of a particular index.

You can also choose a fund that covers any index. There are funds involved in various business sectors - energy, precious metals, banking, emerging markets and others. All you have to do is decide for yourself that this is what you want to do, then invest the money and relax. From now on, your stock portfolio will run on autopilot.

1. Make videos for YouTube

This area is developing very quickly. You can make videos of absolutely any category - music, educational, comedy, movie reviews - anything... and then post it on YouTube. Then you can connect Google AdSense to these videos, and automatic advertising will appear in them. When viewers click on these ads, you will earn money from Google AdSense.

Your main task is to create decent videos, promote them on social networks and maintain a sufficient number of them to provide yourself with income from several clips. Shooting and editing a video is not that easy, but once done, you will have a source of completely passive income that can last for a very long time.

Not sure you'll succeed on YouTube? Michelle Phan combined her love of makeup and drawing with video production, gained more than 8 million subscribers, and now launched her own company with a capitalization of $800 million.

1. Try Affiliate Marketing and Start Selling

This is a passive income technique that is more suitable for owners of blogs and active Internet sites. You can start promoting any products on your website and receive a fixed fee or a percentage of sales.

Making money this way is not as difficult as you might think because many companies are interested in selling their products in as many places as possible.

You can find partnership offers either by contacting manufacturers directly or on specialized websites. It is best if the advertised product or service is interesting to you or matches the theme of the site.

1. Make your photos profitable online

Do you like photography? If so, you may be able to turn this into a source of passive income. Photo banks, such as and, can provide you with a platform for selling photographs. You will receive a percentage or flat rate for each photo sold to a website client.

In this case, each photo represents a separate source of income that can work over and over again. All you need to do is create a portfolio, upload it to one or more platforms, and that's where your active work will end. All technical issues of photo sales are resolved using the web platform.

1. Buy high-yield stocks

By creating a portfolio of high-yield stocks, you will receive a source of regular passive income with an annual interest rate that is much higher than the interest on bank deposits.

Don't forget that high-yielding stocks are still stocks, so there's always the possibility of capital overvaluation. In this case, you will receive profit from two sources - from dividends and return on invested capital. To purchase these shares and complete the appropriate forms, you will need to create a brokerage account.

1. Write an e-book

Of course, this can be quite a labor-intensive process, but once you write a book and publish it on marketplaces, it can provide you with income for years. You can sell the book on your own website or enter into a partnership agreement with other websites that are similar in theme to the book.

1. Write a real book and get royalties

Just like writing an e-book, there's a lot of work involved at first. But when the work is completed and the book goes on sale, it will become a completely passive source of income.

This is especially true if you manage to sell your book to a publisher who will pay you a royalty on the sales. You will receive a percentage of each copy sold, and if the book is popular, these percentages can add up to significant amounts. Moreover, these payments can last for years.

Mike Piper of ObviousInvestor.com recently did just that. He wrote a book, Investing Plain, which was sold only on Amazon. The first book became so profitable that he created a whole series. These books total .

1. Get cashback on credit card transactions

Many credit cards offer cash back ranging from 1% to 5% of the purchase price. You still go shopping and spend money, right?

Such bonuses allow you to provide yourself with a kind of passive “income” (in the form of reduced spending) from actions that you perform anyway.

1. Sell ​​your own products online

The possibilities in this area are endless: you can sell almost any product or service. It could be something you created and made yourself, or it could be a digital product (software, DVDs, or instructional videos)

For trading, you can use a specialized resource, if suddenly you do not have your own website or blog. In addition, you can enter into a partnership agreement by offering goods to sites on relevant topics or using platforms like (American marketplace for selling digital information products - editor's note).

You can learn how to sell products online and earn quite a lot from it. This may not be completely passive income, but it is certainly more passive than a regular job that you have to go to every morning.

1. Invest in real estate

This method falls more into the category of semi-passive income, since investing in real estate involves at least a small level of activity. However, if you have a property that you're already renting out, it's mostly just a matter of maintaining it.

Additionally, there are professional property managers who can manage your property for a commission of approximately 10% of the rent. Such professional managers help make the process of receiving profits from such investments more passive, but they will take part of it.

Another way to invest in real estate is to pay off a loan. If you take out a loan to buy a property that you will rent out, your tenants will pay off that debt a little each month. When the full amount is paid, your profits will increase dramatically, and your relatively small investment will turn into a full-fledged program for quitting your day job.

1. Buy a blog

Thousands of blogs are created every year, and many of them end up abandoned after some time. If you can acquire a blog with enough visitors—and therefore enough cash flow—it can be a great source of passive income.

Most blogs use Google AdSense, which pays once a month for advertising placed on the site. To provide additional income, you can also enter into partnership agreements. Both of these income streams will be yours if you own a blog.

From a financial perspective, blogs typically sell for 24 times the monthly income the blog can generate. That is, if a site can earn $250 per month, most likely you can buy it for $3,000. This means that by investing $3,000, you can receive $1,500 annually.

You may be able to buy the site for less money if the owner really wants to get rid of this asset. Some sites contain “eternal” materials that will not lose relevance and will generate income years after publication.

Bonus tip: If you buy such a site and then fill it with fresh content, you will be able to increase your monthly income, and you will be able to sell the site again after some time for a significantly higher price than you paid when buying it.

Finally, instead of purchasing a blog, you can create your own. This is also a good way to earn money.

1. Create a website that sells

If there is a product that you know a lot about, you can start selling it on a specialized website. The technique is the same as when selling a product of your own making, except that you do not have to deal with the production itself.

After some time, you may find that you can add similar products. If this happens, the site will begin to generate significant profits.

If you can find a way to ship products directly from the manufacturer to the buyer, you won't even have to get your hands dirty. This may not be 100% passive income, but it’s very close to it.

1. Invest in real estate investment trusts (REITs)

Let's say you decide to invest in real estate, but you don't want to devote any attention or time to it. Investment trusts can help you with this. They are something like a fund that owns various real estate projects. The funds are managed by professionals, so you don't have to interfere with their work at all.

One of the main advantages of investing in REITs is that they typically pay higher dividends than stocks, bonds and bank deposits. You can also sell your interest in the trust at any time, making such assets more liquid than owning real estate on your own.

1. Become a passive business partner

Do you know a successful company that needs capital to expand its business? If so, you can become something of a short-term angel and provide that capital. But instead of giving a loan to the owner of the company, ask for a share of the shares. In this case, the owner of the company will manage the work of the company, while you will be a passive partner, also taking part in the business.

Every small business needs a source of referrals to support sales. Make a list of entrepreneurs whose services you use regularly and whom you can recommend for cooperation. Contact them and find out if they have a system for paying for referrals.

The list could include acquaintances: accountants, landscape designers, electricians, plumbers, carpet cleaners—anyone. Be prepared to recommend the services of these people to your friends, relatives and colleagues. You can earn a commission on every referral just by talking to people.

Don’t underestimate referral programs in the professional sphere either. If the company you work for offers bonuses for referring new employees or new clients, take advantage of it. This is very easy money.

1. Rent out your unused property on Airbnb

The concept appeared only a few years ago, but very quickly spread throughout the world. Airbnb allows people to travel the world and pay much less to stay than in regular hotels. By participating in Airbnb, you can use your home to host guests and earn extra money just from renting.

The amount of income will depend on the size and condition of your home and its location. Naturally, if your home is located in an expensive city or near a popular resort, the income will be much higher. This is a way to make money from free spaces in your home that would otherwise be empty.

1. Write an application

Apps can be an incredibly lucrative source of income. Think about how many people have smartphones today. Yes, almost everything! People are downloading apps like crazy—and for good reason.

Apps make people's lives easier. Whether it's helping you post pretty pictures or keeping track of tasks, there's always an app that's useful to someone.

You might ask: If there are so many apps out there, why would you try to create another one. Is there too much competition? This is all true, but fresh, creative ideas can benefit. If you can come up with something unique, you can make money from it.

Don't know how to program? No problem, you can learn. There are a lot of different courses on the Internet, including free ones. Alternatively, you can hire a developer to create an app based on your idea.

The end result is an application that will potentially generate relatively passive income.

1. Create online courses

Every person is an expert in something. Why not create an online course about your passion?

There are several ways to create and deliver your own online courses. One of the easiest ways is to use sites like

We have understood the concepts of cash flow. Now, in order to calculate the cost of an investment project, we must decide on the procedure for determining the discount rate. Let's consider three main points: alternative rates, the WACC model - a weighted average cost of capital model, the CAPM model - a model for estimating the cost of capital assets.

Discount rate based on alternative rate

As for alternative rates when determining the discount rate, the rate that we will use in , we will present some of them.

Alternative bet based on stock index

You can use the stock index return for the period as the discount rate.

Alternative rate based on investors' desired return

You can conduct a survey among your investors about what kind of return they want to have on their investments. Provided that you have a responsible investor and he thinks about what he does with his funds.

Alternative rate based on average yield

You can perform a market analysis and see what other similar projects have similar risks, and what the discount rates are. In other words, if you invest not in your project that you have chosen, but in some others. What income will you receive? In the market, the average cost of resources is 7%, 6%, 7.2%, 6.4%, you can find the average as an option.

Alternative bet based on no risky return

This might be an option. Determine the risk-free return and add a risk premium to it. In principle, risk-free returns are considered. The risk premium can be determined based on the ratings. If the company that is implementing the project has a rating, then by analogy, comparing the rating with other companies, you can determine the risk premium.

Two words about the risk-free interest rate. As you understand from the name, a risk-free bet means a financial instrument in which you do not bear any risk when investing. Obviously, in practice this is practically impossible and therefore the more common phrase is “maximum risk-free instrument”, respectively, maximum risk-free bet. In order to determine the maximum risk-free rate, you need to find an instrument with the lowest risk. The measure of risk is the standard deviation. This is a term from statistics, and it means how much on average the quote fluctuates from the average up and down.

Let's note the following: you use the yield to calculate the standard deviation and your output is the following construction. Example: A stock has an average annual return of 10%, standard deviation of 3%. What does this mean? This means that on average over the year the yield of this security fluctuated in the range from 13% to 7%.

As practice shows, bonds have the smallest standard deviation and these securities are certainly more reliable than stocks. The market value of these securities fluctuates significantly less than the market value of other securities. Accordingly, in order to find a security for which we can determine the maximum risk-free interest rate, we need to choose a bond that will have the smallest standard deviation. Usually, for such calculations, government bonds are immediately taken. Their risk is less than the risks of corporate securities, less than the risks of regional and municipal bonds. If we take countries, we choose American bonds as a basis. In Russia, this could be Russian federal loan bonds.

Discount rate based on the WACC model weighted average cost of capital model

Formula 1 shows that if we take the company’s data as a basis, we can calculate how much it costs this company to attract its capital. Capital consists of two main parts: debt and equity. From stocks and bonds. There may also be long-term credit resources that also need to be taken into account. There are weights in this formula. They correspond to the weight of each source of financing in the capital structure. In this formula, T stands for income tax or corporate tax. The fact is that interest payments on bonds and bank loans are paid from pre-tax profits. And dividends on shares are paid after tax. Therefore, these two parameters, the cost of debt and the cost of shares, will not be comparable. It needs to be brought to a common denominator. In fact, by using the (1-T) multiplier, we make the cost of debt capital comparable to the cost of equity in view. Typically, WACC is calculated based on the balance. Unfortunately, using balance sheet data does not allow you to take into account the risk factor. We will write about this in the next article.

WACC = (1)

– shares of borrowed funds, preferred shares, equity (ordinary shares) of retained earnings;

r – the cost of the corresponding parts of capital

Discount rate based on CAPM capital asset valuation model

This model is mainly designed for stock valuation. She has an interesting destiny. In an attempt to find the most diversified portfolio, foreign scientists came across an interesting fact. The more securities you combine into a portfolio, the lower the risk of the portfolio, expressed by standard deviation. If you look at Chart 1, we have the risk of shares on one axis, and the number of shares in the portfolio on the other. At the moment when there is only one security in the portfolio, the risk of the portfolio is maximum. When two papers are combined, the risk decreases. But what’s interesting is that, starting from a certain point, depending on the market, it can be 100 securities in the portfolio, or 500, the risk stops falling. This has led to a better understanding of the nature of securities risk. It turns out that the risk consists of two parts. The first part is the so-called systemic risk, a risk that cannot be eliminated under any circumstances. And the market pays you for it. The second part of the risk is the risk associated with the issuer itself and can be eliminated. If it can be eliminated, then the market does not pay you for such a risk. If you take both risks, that's your problem. If you want to invest, then you take on two risks: one you get paid for, one you don't get paid for, and you take on an unpaid, excessive risk. Therefore, one needs to build a portfolio and try to avoid unnecessary risk.

Chart 1 Dependence of stock risk on their number in the portfolio

Based on the noted fact that risk consists of two parts, a model called CAPM was built. This is formula 2. The meaning of the model is as follows. There is a direct relationship between the yield of a security and the average return of the market. If the market's profitability changes, then the profitability of your securities changes in a certain way. In order to express this, a special coefficient β was introduced. It is inherently somewhat close to the standard deviation parameter.

CAPM = (2)

r_m – return on the market portfolio (stock index)

r_i – return on company shares

The β coefficient has a simple meaning. Example: A company has a β coefficient of 2. This means that every time the market return changes by one percent, the return on your stock will change by 2%. If the β coefficient is 3. This means every time the market's return changes by 1%, your security's return will change by 3%. Or should change. If β is -1, what does that mean? This means that for every unit the market falls, your security should rise by 1 unit. If your coefficient is 0.5. This means that for every unit of market growth, your security grows by 0.5. This is a good ratio that allows you to select securities in such a way as to build a certain kind of portfolio - aggressive, defensive and others.

We looked at several options for determining the discount rate, and before that we looked at issues related to the definition. In each individual case, you need to conduct separate research and logically justify a particular discount rate. There are no universal rules or formulas for determining the discount rate. After making a choice and analyzing the market, you will have to choose the discount rate that seems most acceptable to you.

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Let's consider two main concepts for solving the current problem of determining the discount rate — And .

Alternative Return Concept

Within the framework, the risk-free discount rate is determined either at the level of deposit rates of banks of the highest reliability category, or is equated to the refinancing rate of the Central Bank of Russia (this approach is proposed in the methodological recommendations developed by Sberbank of the Russian Federation). The discount rate can also be determined using I. Fisher’s formula.

The Methodological Recommendations indicate various types of discount rate. Commercial norm, as a rule, is determined taking into account alternative income concepts. My own discount rate project participants evaluate independently. True, in principle, a coordinated approach is also possible, when all project participants are guided by the commercial discount rate.

For projects of high social significance, determine the social discount rate. It characterizes the minimum requirements for the so-called social efficiency of the implementation of an investment project. It is usually installed centrally.

They also calculate budget discount rate, reflecting opportunity cost use of budget funds and established by executive authorities at the federal, subfederal or municipal level.

In each specific case, the level of decision-making depends on which budget finances the investment project.

Weighted average cost of capital concept

It is an indicator that characterizes the cost of capital in the same way that the bank interest rate characterizes the cost of borrowing a loan.

The difference between the weighted average cost of capital and the bank rate is that this indicator does not imply straight-line payments, but instead requires that the total present value of the investor be the same as what would be provided by a straight-line payment of interest at a rate equal to the weighted average cost of capital.

Weighted average cost of capital Widely used in investment analysis, its value is used to discount expected returns on investments, calculate return on projects, in business valuation and other applications.

Discounting future cash flows at a rate equal to the weighted average cost of capital, characterizes the depreciation of future income from the point of view of a particular investor and taking into account his requirements for the return on invested capital.

Thus, alternative income concept And weighted average cost of capital concept suggest different approaches to determining the discount rate.