6.4 - Net present value of cash flow

Definition

For each year, the net cash flow is calculated as:

The annual net cash flows are discounted at the service provider's required

Service provider required rate of return

The weighted average cost of capital (WACC) can be used to estimate the service provider's required rate of return. WACC is the weighted average of the required return on equity and the (interest) cost of any debt financing.

The service provider's WACC should reflect the appropriate risk and norms associated with the industry.

Post-tax rate of return

Evaluators shall use a post-tax rate of return. Care shall be taken that service provider revenues and costs are calculated accordingly.