Modifed pure present value
Journal Title: Acta Economica - Year 2014, Vol 12, Issue 20
Abstract
The subject of this paper is a modified net present value, and how it could be a useful tool for real investment opportunities valuation when the firm’s opportunity rate of reinvestment is different from its financing rate – cost of capital, or risk adjusted cost of capital (discount rate). This situation can occur for small business projects valuation, rapid growth business project valuation, for business combination valuation, and in situation when investment project have different relevant or systematic risk from the firm’s systematic risk. When the firm’s opportunity rate of reinvestment is different from its financing rate net present value method leads to some type of incorrect results that required new methodology for correct investment decision. One of the opportunities to solve this problem is use the modified net present value.
Authors and Affiliations
Силвије Орсаг
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