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A two-tiered approach to the valuation of investment projects adjusted for governance risk

Author

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  • Rodolfo Apreda

Abstract

This paper sets forth a pair of distinctive contributions to the subject. In the first place, it provides a unified approach to capital investment decisions, by means of a two-tiered framework of analysis. Such approach consists in working out the net present value of the project by discounting its cash flows with a temporal structure of rates of return adjusted for country and credit risk; this procedure accounts for the first tier. It is for the second tier to bring about both the internal and external rates of return. Afterwards, we broaden the streamlined viewpoint in valuation by introducing the Corporate Governance risk rate. As a byproduct, the paper also attempts to furnish analysts as well graduate students taking core courses on Corporate Finance with a friendly and easier road to valuation.

Suggested Citation

  • Rodolfo Apreda, 2009. "A two-tiered approach to the valuation of investment projects adjusted for governance risk," CEMA Working Papers: Serie Documentos de Trabajo. 392, Universidad del CEMA.
  • Handle: RePEc:cem:doctra:392
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    File URL: https://www.ucema.edu.ar/publicaciones/download/documentos/392.pdf
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    References listed on IDEAS

    as
    1. Rodolfo Apreda, 2007. "Factoring governance risk into investors´expected rates of return by means of a weighted average governance index," CEMA Working Papers: Serie Documentos de Trabajo. 356, Universidad del CEMA.
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    Cited by:

    1. René Guigui Gámez & Héctor Salas Harms, 2018. "Indicador financiero eficaz, para la selección de proyectos de inversión incorporando el riesgo, y su validación empírica," Revista de Investigación en Ciencias Contables y Administrativas, Universidad Michoacana de San Nicolás de Hidalgo, Facultad de Contaduría y Ciencias Administrativas, vol. 4(1), pages 20-46, December.
    2. René Guigui Gámez & Héctor Salas Harms, 2018. "Indicador financiero eficaz, para la selección de proyectos de inversión incorporando el riesgo, y su validación empírica," Revista de Investigación en Ciencias Contables y Administrativas, Universidad Michoacana de San Nicolás de Hidalgo, Facultad de Contaduría y Ciencias Administrativas, vol. 4(1), pages 20-46, December.

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    1. Rodolfo Apreda, 2011. "GOVERNANCE RISKS. How to measure them by means of the incremental cash-flow model," CEMA Working Papers: Serie Documentos de Trabajo. 467, Universidad del CEMA.
    2. Enrique Yacuzzi, 2008. "A governance indicator for small and medium-sized enterprises," CEMA Working Papers: Serie Documentos de Trabajo. 390, Universidad del CEMA.
    3. Rodolfo Apreda, 2008. "Cost of capital adjusted for governance risk through a multiplicative model of expected returns," CEMA Working Papers: Serie Documentos de Trabajo. 383, Universidad del CEMA.

    More about this item

    Keywords

    investment valuation; net present value; investment projects; internal rate of return; external rate of return; governance risk; cost of capital.;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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