I'm working on a Discounted Cash Flow analysis for a cement grinding plant. I'm not sure where to get the discount rate from.
The plant is being evaluated as a project with a 25 year life.
It will be a stand-alone entity, not part of a larger company.
It will be 100% debt financed. Payment on the debt will begin after two years (no payments during construction phase) and will be paid back in five years (not counting the two year grace period, so seven years after the beginning on the project).
Should I be using APV for this? If so, I know I would use the interest rate on the debt to calculate the NPV of the interest tax shield. But what discount rate should I use for the NPV of the project? I have calculated the unlevered betas of three cement companies and averaged those (although I wasn't sure what counts as debt for that: would lease obligations count?). Should I simply plug that beta number intoto get my discount rate for the project cash flows? Any help would be greatly appreciated.