Capital budgeting,investment project valuation and financing mix: Methodological proposals |
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| Institution: | 1. South China University of Technology, China;2. Shenzhen Institute of Advanced Technology, CAS, China;3. Harbin Institute of Technology, China;4. Southampton University, UK and Guangzhou Institute of Advanced Technology, CAS, China;5. University of Nevada, Las Vegas, USA;6. KTH Royal Institute of Technology, Sweden;1. Institut für Ur- und Frühgeschichte Christian-Albrechts-Universität zu Kiel, Johanna-Mestorf Str. 2-6, 24118 Kiel, Germany;2. Department of Archaeology, New Bulgarian University, Sofia, Bulgaria;3. Department of Antiquities, La Sapienza University of Rome, Italy;4. Römisch-Germanische Kommission (RGK), Frankfurt a.M., Germany;5. Institut für Vor- und Frühgeschichtliche und Provinzialrömische Archäologie, Ludwig-Maximilians University, Munich, Germany;6. Max Planck Institute for the Science of Human History, Jena, Germany;7. Institut für Ökosystemforschung, Christian-Albrechts-Universität zu Kiel, Germany;8. CRC 1266 \"Scales of Transformation - Human-Environmental Interaction in Prehistoric and Archaic Societies\", Christian-Albrechts-Universität zu Kiel, Germany |
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| Abstract: | 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. |
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