When executives evaluate a potential investment, whether it’s to build a new plant, enter a new market, or acquire a company, they weigh its cost against the future cash flows they expect will spring from it. To make sure they’re comparing apples to apples, they discount those future cash flows to arrive at their net present value. Estimating the rate at which to discount the cash flows — the cost of equity capital — is an integral part of the exercise, and the choice of rate has a significant effect on estimates of a project’s or a company’s value. For instance, if you had recently run a discounted cash flow, or DCF, valuation on the UK-based mobile phone giant Vodafone, you would have found that changing the discount rate from 12% to 11.6% — hardly a major change — would have increased the company’s estimated value by 15%, or £13.4 billion.