Comparative analysis of the financial discount rate and of the net present value of a public investment project throughout its life

Abstract

This paper sets out to identify the correlation between the variations in spending and revenue as the investment progresses through time and the evolution of the financial discount rate and of the net present value; it also seeks a method for computing the probability of reaching a certain value. The project’s performance indicators are established at the “0” moment, when costs and revenues are estimated for the entire life of the project. It would be useful for any investor, even if they are local administrations, to follow the actual evolution of their investments as they develop through time. The positive or negative deviations from the performance indicators can determine the investor to adopt tailored decisions for each particular case in order to maintain a minimum set-performance for the project.

Keywords

• discount rate
• sensitivity analysis
• net present value