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Assessing the Cost of Capital for PPP Contracts

  • Mark Hellowell
  • Veronica Vecchi
Chapter

Abstract

This chapter outlines the theoretical frameworks and practices used by firms to estimate the appropriate rate of return on their investments in healthcare PPP projects. Our aim is to outline the appropriate method for assessing the “reasonableness” of returns, drawing on capital budgeting theory. We focuse on estimates of the cost of capital for the direct investor of primary equity in the SPV. In other words, we are interested in the rate of return that directly affects the bid and contract price, because this is the price that is ultimately be paid for by the users of the infrastructure or technologies to which the project relates. The cost of equity is, in this sense, an important variable in the financial appraisal and value-for-money analysis for the PPP.

Keywords

Capital budgeting IRR economic efficiency cost of capital value-for-money market psychology 

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Copyright information

© The Author(s) 2018

Authors and Affiliations

  • Mark Hellowell
    • 1
  • Veronica Vecchi
    • 2
  1. 1.University of EdinburghEdinburghUK
  2. 2.Bocconi UniversityMilanItaly

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