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Capital Budgeting for Small Businesses: An Appropriate Modification of Net Present Value

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  • John B. White

    (Georgia Southern University)

  • Morgan P. Miles

    (Georgia Southern University)

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    Abstract

    This paper sets forth a capital budgeting technique that is both theoretically correct and sensitive to the special financing needs of the small business. This technique involves evaluating cash flows and determining if they are sufficient to meet the loan payment schedule. A sufficient amount of cash flow must remain after debt obligations are met to compensate the equity investment. Net operating cash flows are discounted at the cost of equity while the tax shield from interest and depreciation is discounted at the cost of debt.

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    File URL: http://jefsite.org/RePEc/pep/journl/jef-1993-03-1-f-white.pdf
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    Bibliographic Info

    Article provided by Pepperdine University, Graziadio School of Business and Management in its journal Journal of Small Business Finance.

    Volume (Year): 3 (1993)
    Issue (Month): 1 (Fall)
    Pages: 79-95

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    Handle: RePEc:pep:journl:v:3:y:1993:i:1:p:79-95

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    Web page: http://bschool.pepperdine.edu/jef
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    Related research

    Keywords: Capital Budgeting; Small Business; Net Present Value; NPV;

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    1. Myers, Stewart C, 1974. "Interactions of Corporate Financing and Investment Decisions-Implications for Capital Budgeting," Journal of Finance, American Finance Association, vol. 29(1), pages 1-25, March.
    2. Runyon, L. R., 1983. "Capital expenditure decision making in small firms," Journal of Business Research, Elsevier, vol. 11(3), pages 389-397, September.
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