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Single vs. Multiple Discount Rates: How to Limit "Influence Costs" in the Capital Allocation Process


  • John Martin
  • Sheridan Titman


Most finance textbooks suggest that companies evaluate investment projects using discount rates that reflect both the debt capacity and the unique risks of the project. In practice, however, companies often use their company-wide WACC to evaluate such investments because of the difficulty of (and subjectivity involved in) estimating the risk of individual projects, and the potential for managerial bias and influence to distort the estimates. Copyright (c) 2008 Morgan Stanley.

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  • John Martin & Sheridan Titman, 2008. "Single vs. Multiple Discount Rates: How to Limit "Influence Costs" in the Capital Allocation Process," Journal of Applied Corporate Finance, Morgan Stanley, vol. 20(2), pages 79-83.
  • Handle: RePEc:bla:jacrfn:v:20:y:2008:i:2:p:79-83

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    References listed on IDEAS

    1. Miles, James A. & Ezzell, John R., 1980. "The Weighted Average Cost of Capital, Perfect Capital Markets, and Project Life: A Clarification," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 15(03), pages 719-730, September.
    2. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
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    Cited by:

    1. Tor Brunzell & Eva Liljeblom & Mika Vaihekoski, 2013. "Determinants of capital budgeting methods and hurdle rates in Nordic firms," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 53(1), pages 85-110, March.

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