Discount rate for government projects: the case of government real estate in Estonia. Diskonteerimismäära leidmine riiklikele investeerimisprojektidele Eesti riigi kinnisvara näitel

Priit Sander, Oliver Lukason, Kaia Kask


Government often faces decisions, which concern choosing between projects
carrying different risk level and timing of cash flows. For calculating government
real estate investment discount rate, we can apply social opportunity cost approach
and derived from that the capital asset pricing model (CAPM). Several aspects have
to be addressed when using CAPM: liquidity of assets, transaction costs and
selection of appropriate comparative sector. Taking into account mentioned aspects,
government discount rate for real estate investment in the long term investment
horizon was found to be 8.9% according to CAPM. In case the lessee of real estate is
government, then given discount rate overestimates payment risk level and actual
discount rate should be between the price of loans taken by government and
discount rate found using CAPM


government projects; discount rate; real estate; CAPM

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