Financial Discount Rates in Project Appraisal
In the financial appraisal of a project, the cashflow statements are constructed
from two points of view: the Total Investment (TI) Point of View and the Equity
Point of View. One of the most important issues is the estimation of the correct
financial discount rates for the two points of view. In the presence of taxes, the benefit
of the tax shield from the interest deduction may be excluded or included in the free
cashflow (FCF) of the project. Depending on whether the tax shield is included or
excluded, the formulas for the weighted average cost of capital (WACC) will be
different. In this paper, using some......