Evaluating capital investment projects

Moshe Ben‐Horim; Narayanaswamy Sivakumar

doi:10.1002/mde.4090090402

Evaluating capital investment projects

Moshe Ben‐Horim^*
, Narayanaswamy Sivakumar

^*Corresponding author for this work

BA Business Department

Research output: Contribution to journal › Article › peer-review

3 Scopus citations

Abstract

The risk‐adjusted discount rate method for evaluating capital investment projects applies the risk‐adjusted rate to equilibrium as well as disequilibrium expected returns, leading to biased NPV calculations. This paper uses the CAPM framework, and suggests a procedure for applying the risk‐adjusted rate without causing a bias. The procedure is shown to result in NPVs identical to those obtained by the certainty equivalent approach. A comparison with a previously suggested procedure is also provided.

Original language	English
Pages (from-to)	263-268
Number of pages	6
Journal	Managerial and Decision Economics
Volume	9
Issue number	4
DOIs	https://doi.org/10.1002/mde.4090090402
State	Published - Dec 1988

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Evaluating capital investment projects

Abstract

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