discount rate for a project

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March 7, 2017 at 11:47 am #376218
lovelandmusic
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I just went through the revision lecture on discount rate for a project on this site, What rate do we use if the project is financed entirely by debt?
March 7, 2017 at 2:14 pm #376267
John Moffat
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You would use the APV approach.

Discount at the ungeared cost of equity and then add on the tax shield on the debt.

APV is always the better approach if there is a big change in the gearing.
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