The required return in the project has the following conditions: If the project is evaluated by an enterprise, the required rate of return in the project must exceed the rate required by the shareholders or financiers on the one hand.

If the project is individual, the rate of return on the project should be higher than the risk-free rate, such as government bonds.

The concept or term "project" has different meanings in project analysis and evaluation or project management cycle. A project may contextually relate to individual's investment, commercial enterprises or government projects / programmes. For example, if you are dealing with forestry project - it is likely to be taken as government forestry programme or private agricultural forestry venture.

Setting the project idea(s) in line with the above specified scenarios, we assume that in private sector projects, we will be considering : Average annual accounting rate of returns (simply accounting rate of return), Pay-back or break-even period, Net Present Value and the Internal Rate of Returns (IRR).

In the case of government forestry projects; we may apply the NPV method and the IRR but it is important to stress here that in public sector project the term / concept of social (or fiscal) returns is frequently used and preferred. Research implication of the use of Social return is that the criterion for selection of acceptable rate of return is usually lower that the IRR for private enterprises. Hope it is not a length lecture !. and hope it is clear for baseline line assimilation. Thanks.

Good evening, from Lima Peru. Thank you so much for the comments. Beyond what he points out in his information, with which I fully agree, my interest centers, among other points, on postulating a model for calculating the discount rate for projects with a sustainability focus. I believe that the discount rate following the classic perspective, such as the CAPM model, leaves aside the nature of a climate or forestry project, and it is assumed that COK and WACC do not include the risk of the activity since there is no background for this.

So my concern is to show that COK or WACC capture that "unknown" risk for the evaluators. If we look at one more level how we would determine the ERP or the Beta of the company that seeks financing. I am currently developing a model to finance agrobiodiversity in Peru. The relevant discount rate to discount the flows should reflect that agrobiodiversity activity, which goes beyond the classical private and public perspectives.

I reiterate my thanks for your comments.

Walther

Thank you Walther for reaching out from Lima (Peru). You have introduced a refreshing dimension to the thematic issue on discounting model and rate of returns for agro-forestry / biodiversity projects and programmes in our different economies. Please let us appreciate the fact that agro-forestry projects are largely undertaken by government in developing countries - if the experience from Nigeria is any thing to rely upon. In view of long gestation period of agro-forestry products, commercial agro-venturers have very rarely get their enterprises listed in the stock exchange (market) which makes the adoption of cost of capital (COK) and WACC to sparingly put in use by evaluators in developing countries. Agro forestry thrives in developing countries anyway and less attractive to researchers in the developed economies. You will notice that little empirical studies have been initiated on the application of CAPM and BETA factor as risk premium to be captured as components of internal rate of returns on agro-forestry (commercial) ventures in developing countries. But, we can and should kick-start it from here.

Yes, I must concede to you on the fact agro-biodiversity activities go beyond the classical private and public perspectives to some extent; but we can not dispense with the established methodology. Most of the agro-forestry and biodiversity projects have short-to-medium term gestation (Banana, plantain, palm tree, apple, cherry and pineapple plantations) whereas items like Timber etc may have gestation of about 10 - 20 years. Now, the parameter of the threshold of cost of financing (or capital) is the cost of private equity capital + cost of borrowed or Loan capital = WACC) and then we can add risk premium of about 2.5 percent as BETA factor to the weighted average of cost of the series of capital fund employed (used) in financing the agro-forestry project up to the locus (luci) of maturity or harvesting. Again, this is an illustrative approach or model. My position as espoused here is to elicit further comments and contributions from the galaxy of scholars.