Quote:
Originally Posted by Bingo
I can look at it, but I really disagree.
My work has 10% as the absolute line in the sand, and 15% a pretty recent memory for oil and gas capital.
These guys have huge investment opportunities in front of them with big returns, tying up their capital would need a pretty base return assumption or it's not worth it.
Remember this is the rate that future cash flow is discounted not a return on investment.
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Longtime lurker. Great job on doing this research and work. I am posting only because the NPV at different discount rates is probably the missing piece of the puzzle.
While 10% is a good lower bound and I agree that 15% is a more likely figure for most companies, those figures are to account for risk. While I don't know the correct discount rate, I don't see similar risk on this investment as there are in other industries. It feels more like a utility, in that the future cash flows are pretty easy to estimate And have low volatility to the downside.
I'd love to see impact of discount rates of 4%, 6% and 8% under both scenarios if it's easy to run.
One idea you may be thinking as well is that the city can raise capital at 3.5-4%(or other municipalities can, no idea on Calgary specifically). If a lower discount rates solves a lot of this then it seems like a deal where the city fronts the money and takes a bigger return could solve a lot of the issues in this negotiation. .