## 6 Elaboration on Terms of the Funding Gap Questionnaire

Each company should provide all costs and revenues associated with the investment as a whole and the boundaries of investment should be defined from the perspective of the business investor: the calculation should include all (positive and negative) cash-flows for what the investor regards as the investment project, at the time these cash-flows are to be incurred. It is not enough to only submit the eligible costs. For the purpose of calculating the funding gap, what matters are all the costs (eligible or not) associated with the investment project and all the revenues over the entire lifetime including the mass production phase. • The funding gap calculation is to be done consistent with the following methodology: • For the purposes of this IPCEI, it is sufficient to provide the Excel sheet calculations for one scenario, the basic scenario (no optimistic and pessimistic scenarios and respective probabilities needed), provided the company is able to justify in the accompanying text document why this basic scenario is the most probable one. • The funding gap that must be calculated is the funding gap of the investment project (i.e. all investment costs and operating costs) to be made by the company for the purpose of the IPCEI.

- • The investments made for the IPCEI in R&D and FID by a company will generate revenues.

• The funding gap is the difference between discounted positive and negative cash flows over the entire economic lifetime of the investment project, i.e. covering the entire period during which the investments made generate revenues / the products that are produced thanks to programme. The investments are sold on the market. Hence, the funding gap must not be calculated only for the duration of the IPCEI project, which is up to the end of the FID phase but must also cover the ensuing commercial/mass production phase. • One option is to include in the excel sheet the best estimate projections that the company has for this entire period. • Alternatively, companies could provide data for the explicit forecast horizon of the companyand give a residual/terminal value (i.e. net present value of expected cash flow beyond the explicit forecast horizon for the remaining years of the economic lifetime), discounted to the current value. In that case, the number of years of mass production for which data are inserted should be realistic. • Practically, in the Excel sheet, after the data for the FID phase and after the data for the reasonable number of years of mass production, a column should be inserted and contain the terminal value for the costs and for the revenues. • Sales/revenues (positive cash flows): projected sales figures should be used by each company rather than a formula. These should be the figures actually used by the company in its business plan and decision-making process. This can be best estimate figures. This data should overwrite the formula embedded in the Excel sheet which calculates sales/revenues as a function of costs, an assumption of idle share and an assumption of gross margin. Only if a company has no sales projections or any best estimate data, and only if it actually uses the formula embedded in the sheet (function of costs, idle share and gross margin) in its business plan and decision making process, should it apply the formula. • Cash flows should normally be discounted using the weighted average cost of capital (WACC ) of the company. The firm should provide evidence that the discount factor applied is the actual WACC used by the company (e.g. by internal documents showing the applied WACC for investment analysis). The reason to deviate from the WACC usually applied by the company should be explained in detail.