The Discount Rate in the Assessment of EU Funded Investment Projects
The Discount Rate in the Assessment of EU Funded Investment Projects

Summary/Abstract: The article presents the effect of the financial discount rate on key financial indicators in the cost-benefit analysis used in the assessment of public investment projects – financial net present value, financial internal rate of return and financial gaps. It then estimates the Weighted Average Cost of Capital as an alternative approach for determining the discount rate. The model builds on the debt/equity ratio in the overall project investment portfolio and Capital Asset Pricing Model based on: (1) the return gained from investment in risk-free instruments; (2) the risk premium for the state (the so-called asymmetric state-related risk); (3) the business risk premium; (4) the project asymmetric risk premium. The model is then applied to an environmental investment project in Bulgaria.

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