Journal
EUROPEAN JOURNAL OF OPERATIONAL RESEARCH
Volume 135, Issue 2, Pages 326-337Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/S0377-2217(01)00044-3
Keywords
investment analysis; finance; energy; capital budgeting; net present value
Ask authors/readers for more resources
A firm using a discount rate defined at the corporate scale as a weighted average cost of capital (WACC) may have to value projects subject to a different tax rate from the one used to calculate its discount rate. Moreover, to determine the economic value of a project, the WACC and Arditti-Levy methods need to be adjusted if the firm allocates to this project a loan representing proportionally more (or less) than the fraction corresponding to the target debt ratio defined by the firm for projects in the same class of risk. We first propose a method which corresponds to the adjustment of standard WACC calculations. The formulation adopted (generalized ATWACC method) has the advantage of being independent of any consideration related to debt ratios. We then develop a consistent adaptation of the Arditti-Levy method (adapted BTWACC method), but it does not possess the simplicity of that of the generalized ATWACC method. (C) 2001 Elsevier Science B.V. All rights reserved.
Authors
I am an author on this paper
Click your name to claim this paper and add it to your profile.
Reviews
Recommended
No Data Available