ARTICLE
TITLE

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

SUMMARY

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

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