Table:
|  | 2019 | 2018 |
| --- | --- | --- |
| Annual growth rate (after plan period) | 3.0% | 3.0% |
| Risk free rate of return | 3.0% | 3.0% |
| Market risk premium | 5.0% | 4.9% |
| Beta factor | 0.83 | 0.79 |
| Cost of debt | 3.3% | 3.3% |
Paragraphs:
The pre-tax discount rate used within the recoverable amount calculations was 8.5% (2018: 8.0%) and is based upon the weighted average cost of capital reflecting specific principal risks and uncertainties. The discount rate takes into account the risk-free rate of return, the market risk premium and beta factor reflecting the average beta for the Group and comparator companies which are used in deriving the cost of equity.
The same discount rate has been applied to both CGUs as the principal risks and uncertainties associated with the Group, as highlighted on pages 30 to 33, would also impact each CGU in a similar manner. The Board acknowledges that there are additional factors that could impact the risk profile of each CGU, which have been considered by way of sensitivity analysis performed as part of the annual impairment tests.
Key drivers to future growth rates are dependent on the Group’s ability to maintain and grow income streams whilst effectively managing operating costs. The level of headroom may change if different growth rate assumptions or a different pre-tax discount rate were used in the cash flow projections. Where the value-in-use calculations suggest an impairment, the Board would consider alternative use values prior to realising any impairment, being the fair value less costs to dispose.
The key assumptions used for value-in-use calculations are as follows:
Having completed the 2019 impairment review, no impairment has been recognised in relation to the CGUs (2018: no impairment). Sensitivity
analysis has been performed in assessing the recoverable amounts of goodwill. There are no changes to the key assumptions of growth rate or
discount rate that are considered by the Directors to be reasonably possible, which give rise to an impairment of goodwill relating to the CGUs.
Question:
In what situations might the level of headroom change?
Answer: if different growth rate assumptions or a different pre-tax discount rate were used in the cash flow projections