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The Economic Life of an Investment and the Appropriate Discount Rate

Published online by Cambridge University Press:  06 April 2009

John R. Brick  and
Howard E. Thompson
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Extract

Recently, the appropriateness of the weighted average cost of capital for making decisions on capital structure and the selection of projects has been seriously questioned. Arditti [1] showed that when project lives were finite, the weighted average cost of capital was not appropriate for valuing the firm. Beranek [2] demonstrates that when the objective is shareholder wealth maximization, the appropriate discount rate for capital budgeting decisions for finite lived projects n > 1 is not the traditional weighted average cost of capital.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 13 , Issue 5 , December 1978 , pp. 831 - 846
Copyright
Copyright © School of Business Administration, University of Washington 1978

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References

REFERENCES

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