For a solar plant operated abroad, Escalvin uses as its starting point its pre-tax incremental borrowing rate of 6 %. The cash flows do not take currency risk into account, for which the market would require an extra 1 %. Country risk, valued by the market at 2.5 %, is however already built into the cash flows through weighted interruption scenarios. The plant is financed by an intragroup loan at 2 %. Determine the pre-tax discount rate.
- Pre-tax incremental borrowing rate
- 6 %
- Currency risk premium (% points)
- 1 %
- Country risk premium (% points)
- 2.5 %
- Intragroup loan rate
- 2 %