Cost of Capital in Investment Decisions

Which cost of capital should I use when valuing an
investment? The aim of this book is to provide an
answer for corporate finance managers, industrial
managers, MBA or finance students who have faced
this very dilemma.
Finance theory explicitly advocates that firms use a
project-specific discount rate when valuing
investment projects, or at least a rate specially
tailored to each division within a multidivisional
firm. Practitioners and scholars have designed a
significant number of methods to compute such
specific costs of capital ranging from high-flying
approaches to very operational methods. And yet, in
a recent survey of US firms, Graham and Harley
(2001) showed that nearly 60% of responding
companies said they use a single, company-wide
discount rate to evaluate new investment projects.
The yawning gap between corporate finance theory and
in-company finance practices will be illustrated by
a technical study of the varied approaches and an
exploration of past and current business practices.

Auteur

Edouard de Mézerac specialized in Corporate Finance, and holds a
Master's degree from HEC-Paris. He is currently working for the
management consulting firm Oliver Wyman in Paris.

Texte du rabat

"Which cost of capital should I use when valuing an
investment?" The aim of this book is to provide an
answer for corporate finance managers, industrial
managers, MBA or finance students who have faced
this very dilemma.
Finance theory explicitly advocates that firms use a
project-specific discount rate when valuing
investment projects, or at least a rate specially
tailored to each division within a multidivisional
firm. Practitioners and scholars have designed a
significant number of methods to compute such
specific costs of capital ranging from high-flying
approaches to very operational methods. And yet, in
a recent survey of US firms, Graham and Harley
(2001) showed that nearly 60% of responding
companies said they use a single, company-wide
discount rate to evaluate new investment projects.
The yawning gap between corporate finance theory and
in-company finance practices will be illustrated by
a technical study of the varied approaches and an
exploration of past and current business practices.