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In APV we should discount tax shield and benefits of subsidised loan at commercial % rate or risk-free rate. Please advise what comment we should make choosing commercial rate and what comment we should make choosing risk free rate.
Also in Pilot paper 2013 q.1, 5% was chosen for discounting tax shield and benefits of subsidy. I can’t understand why they chose 5% (which relates to loans in USD) while Tramont takes loan in GR, 13% (that relates to GR loans) seems more logical.
oh, sorry, I understood why 5% is chosen, because we translated GR cash flow into USD:) But please advise which comment,argument we should make choosing either commercial or risk -free rate
The discounting should be done that reflects the riskiness of the tax benefits.
If we assume that the tax benefits are risk-free then it is logical to use the risk-free rate.
On the other hand, it can be argued that the tax benefits carry the same risk as the interest on which they are calculated, which would make it logical to use the cost of debt.
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