12 Some government departments and state-owned enterprises

(SOEs) in New Zealand must pay to the Crown an annual capital or financing charge based on the value of their assets.

The purpose is to ensure that the cost of the Crown’s investment in assets is recognised by government departments and SOEs, in order to improve asset management.

a How could a capital charge be incorporated into the NPV analyses of proposed investment projects for a government department or SOE?

b What are the potential benefits and problems associated with using the capital charge in the financial evaluation of long-term investments?