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In an answer to part c
The bpp kit says “A further way of dealing with the high uncertainty attached to the cost of decommisioning is to decrease the discount rate for the cost figure usedIs it really possible to use a separate discount rate for one element of the NPV?
Thanks
It is possible certainly – the problem would be deciding on a discount rate.
(Don’t forget that with CAPM we are always ending up with a discount rate based on the level of risk. What we do is base it on the overall risk of the investment, but why not have different rates for flows with different levels of risk?)
We never do it in the exam, and even in real life it would be unlikely because the problem of deciding on a realistic rate to use.
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