Division 4.2 Risk premiums
United Kingdom
We also note that the reports recognise that investment in hotel facilities is riskier than investment in office space (e.g. on p. 12 and p. 26 of the 2000 report). At all times, the Spanish authorities have consistently envisaged the construction of a ‘hotel complex’.
Similarly, the report indicates that the discount rate (tipo de actualización) is given by the following formula (p. 16 of the 2000 report):
On the same page, a table provides the minimum risk premiums to be applied. The relevant premiums are above the ex-ante expected return on investment in Ciudad de la Luz.
Lastly, the risk premium used in the calculations appearing on p. 21 of the 2000 report (10 %) is lower than the one appearing in the corresponding table on p. 16 (11 %).
Notes on Division 4
Footnotes
- f1
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The LECG report of 25 April 2008 follows the same line, as it states at the outset (beginning of section 2.1.) that the relevant question for the application of the MEIP is ‘With the information available at the time the investment was made, did the project offer enough profitability to induce a private investor also to decide to undertake this investment? […] The investment decision must be analysed from an ex-ante perspective.’