WP EFMA Athens 2000
12 Pages Posted: 22 Jun 2000 Last revised: 28 May 2012
Date Written: 2000
Analysts can use various methods to value an investment project including the standard weighted average cost of capital (WACC) method, the Arditti-Levy method, the equity residual method, and the Adjusted Present Value. We propose a unique formulation from which these methods can be derived. This formulation permits demonstrating the equality of their net present values and the consistency of their internal rates of return in a straightforward manner when a predetermined debt ratio is targeted. We also discuss possible pitfalls and adjustments when considering a project's financing mix.
Keywords: Capital Budgeting, Cost of Capital, WACC, NPV, IRR, APV
JEL Classification: G30, G31, G32
Suggested Citation: Suggested Citation
Pierru, Axel and Babusiaux, Denis, Capital Budgeting and Cost of Capital: A Unique Formulation of the Main Investment Decision Methods (2000). WP EFMA Athens 2000. Available at SSRN: https://ssrn.com/abstract=233120 or http://dx.doi.org/10.2139/ssrn.233120