- Volume 30 Issue 1
Review on the Pertinent Discount Rate for the Public Investment Project
공공투자사업(公共投資事業)의 적정(適正) 할인율(割引率) 검토(檢討)에 관(關)한 연구(硏究)
- Park, Jae Keun (Department of Agricultural Economics, Chungnam National University) ;
- Lim, Jae Hwan (Department of Agricultural Economics, Chungnam National University)
- Published : 2003.06.30
For the pre-feasibility study and project evaluation, the discount rate or cutoff rate should be given by the government authority. To get the Benefit/Cost Ratio, NPV(Net Present Value) and IRR(Internal Rate of Return) of the public investment projects, the pertinent and realistic discount rate should be determined to be suitable to the present time period. The cut-off rates in Korea were equivalent to 15% in 1970's, 10% in 1980's and 8% in 1990's. The prevailing rate of discount as 8% is considered not to be suitable for the 2000's public project appraisal considering the present interest rates on deposit and national bonds. To determine the socio-economic feasibility of the public projects, the IRR should be bigger than the present cutoff rate. When we still use the high old rate of discount, the analytical results of project appraisal will show always economically unfeasible. Therefore the new rate of discount suitable for present time should be determined by the government. The public projects to be implemented in 2000 year onward are recommended to be adapted 5% of cutoff rate for the project appraisal and evaluation according to the results of reviewing the tendency of discount rates and market rates of interest in Korea.