From: The commercial performance of cellulosic ethanol supply-chains in Europe
Discount rate | The greater the discount rate, the more expensive it becomes to finance a project. For a project financed by a combination of debt and equity the effective discount rate is given by the Capital Asset Pricing Model. This discount rate is a function of the expected asset price volatility (Beta), risk-free market rate, market-risk premium, cost of debt and the ratio of debt to equity. |
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Investment life | A longer investment life increases the value of future revenues thereby reducing the cost of project finance. |
Salvage value at end of project | The greater the salvage value, the lower the financing cost. |
Capital grants | Capital grants directly reduce the amount of capital that must be financed by other means, thus lowering the finance cost. |
Build duration | Increasing build time delays the point at which the project begins to generate revenues thereby increasing the financing cost. |
Tax rate | Increasing the tax rate reduces the value of future revenues. This increases the cost of financing the project. |
Depreciation | Proportion of capital costs which can be written off against tax each year; normally determined by legislation. |