Globalizing the Cost of Capital and Capital Budgeting at AES

Posted: 18 Aug 2006  

Mihir A. Desai

Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

Date Written: 2006

Abstract

With electricity generating businesses around the world, AES Corp. is seeking a methodology for calculating the cost of capital for its various businesses and potential projects. In the past, AES used the same cost of capital for all of its capital budgeting, but the company's international expansion has raised questions about this approach and whether a single cost of capital adequately accounts for the different risks AES faces in its diverse businesses and diverse environments. The company recently suffered heavy losses from currency devaluations in South America and regulatory changes in other countries. The director of the corporate planning group is developing a methodology for taking account of different country and project risks, and the case allows students to use this methodology to calculate the cost of capital for 15 different projects around the world. Students must consider how a global firm can account for differing risks in evaluating its international operations and in investing abroad.

Suggested Citation

Desai, Mihir A., Globalizing the Cost of Capital and Capital Budgeting at AES (2006). HBS Publishing Case No.: 9-204-109; Teaching Note No.: 5-206-080. Available at SSRN: https://ssrn.com/abstract=925359

Mihir A. Desai (Contact Author)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6693 (Phone)
617-496-6592 (Fax)

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