ESTIMATING THE COST OF CAPITAL FOR ZAMBIA Background Zambia has in the last 10 to 15 years experienced a euphoria in various types of projects ranging from roads to buildings while other investors have invested in process plants and manufacturing. Examples of such projects include the Zambian breweries plant expansion project, Zambia sugar plant expansion project, Trade Kings, Kalabo Mongu road, Kazungula bridge, Mopani copper mine Kitwe shaft, building of new Chinsali town and so on. What is common among all these projects is project appraisal. Project appraisal is one of the important tests done prior to implementing a project in order to determine the viability of the project. In doing so, one key variable used is the discount rate on which the discount factor is built. Discount factor: A discount factor is a number that reflects the value in the present of a unit of money received in the future. A discount factor of 0.95 for money received in a years time indicates that the value of a monetary unit received in a years time is worth only 95 ngwe today. The discount factor is related to the discount rate through the following equation: 1 (1 + i)n , where i is the rate of interest (discount rate) and n is the number of years. The process of finding the value in the present of a monetary unit, say a kwacha, received in the future value is generally referred to as discounting. Discount rate: The discount rate is a number used to calculate the net present value of a stream of benefits and costs occurring through time. It usually represents the cost of capital for the person or entity calculating the net present value of the stream. Requirement: You are required to undertake to advise how the discount rate for Zambia could be determined and consequently determine the discount rate for the country which the Ministry of National Development Planning could consider adopting. This is important because the country seems to lack this rate on which all projects could be appraised consistently, fairly and orderly. The lack of this rate has led to each appraiser using their own rate even if project finance is based on locally generated funds. Further, you are to show the link between the discount rate and project finance