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The Economic Life of an Investment and the Appropriate Discount Rate

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  • Brick, John R.
  • Thompson, Howard E.

Abstract

Recently, the appropriateness of the weighted average cost of capital for making decisions on capital structure and the selection of projects has been seriously questioned. Arditti [1] showed that when project lives were finite, the weighted average cost of capital was not appropriate for valuing the firm. Beranek [2] demonstrates that when the objective is shareholder wealth maximization, the appropriate discount rate for capital budgeting decisions for finite lived projects n > 1 is not the traditional weighted average cost of capital.

Suggested Citation

  • Brick, John R. & Thompson, Howard E., 1978. "The Economic Life of an Investment and the Appropriate Discount Rate," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 13(5), pages 831-846, December.
    • Handle: RePEc:cup:jfinqa:v:13:y:1978:i:05:p:831-846_01
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    Cited by:

    1. Bavesh M Patel, 1999. "A Critical Review of the Paper," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 24(1), pages 37-40, January.
    2. Collan, Mikael, 2004. "Giga-Investments: Modelling the Valuation of Very Large Industrial Real Investments," MPRA Paper 4328, University Library of Munich, Germany.

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