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The Influence of Company's Capital Cost on Investment Decision

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  • Dorina Emilia TOMA

    (Dunarea de Jos University of Galati, Romania)

Abstract

This paper is aimed at highlighting the importance of the cost of capital as a discount rate of investment in making an investment decision in the ROMNAV Braila company. This study carefully puts forward the existence of four possible cases to which companies may belong: unlevered and investments to maintain the productive capacity will be made; indebted and investments to maintain the productive capacity will be made; unlevered and new investments will be undertaken and indebted and new investments will be undertaken. The results of the study show that the average cost of capital is higher when the company turns to debt; the market value of the company is higher when it is indebted and new investments will be made and the cost of capital can be used as a discount rate of the company assessment.

Suggested Citation

  • Dorina Emilia TOMA, 2014. "The Influence of Company's Capital Cost on Investment Decision," Economics and Applied Informatics, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, issue 1, pages 61-68.
    • Handle: RePEc:ddj:fseeai:y:2014:i:1:p:61-68
    as

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    References listed on IDEAS

    as
    1. Myron J. Gordon & Eli Shapiro, 1956. "Capital Equipment Analysis: The Required Rate of Profit," Management Science, INFORMS, vol. 3(1), pages 102-110, October.
    2. Dale W. Jorgenson, 1996. "Investment - Vol. 1: Capital Theory and Investment Behavior," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100568, December.
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