Assessing the cost of capital for PPP contracts

Mark Hellowell, Veronica Vecchi

Research output: Chapter in Book/Report/Conference proceedingChapter

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.
Original languageEnglish
Title of host publicationPublic Private Partnerships in Health
Subtitle of host publicationImproving Infrastructure and Technology
EditorsVeronica Vecchi, Mark Hellowell
PublisherSpringer International Publishing AG
Chapter5
Pages85-109
ISBN (Electronic)9783319695631
ISBN (Print)9783319695624
DOIs
Publication statusPublished - 30 Jan 2018

Keywords

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

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