MM comments that discount rates “r” are asset-specific, not investor-specific. Why did he say that?
I thought the whole point of discount rates is that individual investment firms make a decision on their required rates of return before making a play.
If this discount rates are decided by the asset, who decides that for everyone and what is their methodology?
Inasmuch as I’m not skilled in abnormal psychology, I cannot say.
Interesting question. My gut response is that an asset generates (or has the capacity to generate) the same cash flows regardless of who owns it. So, the risk of achieving those cash flows are the same for everyone as well.
But that’s not necessarily true: you can make more money with a truck than I can if you are able run it 24 hours a day in three 8-hour shifts, but I can only have it running in one 8-hour shift per day.
Then there’s the issue of financing. If you can get financing at a lower rate than I can, your “r” has to be lower than my “r.”