IDEAS home Printed from https://ideas.repec.org/a/ddj/fseeai/y2014i1p61-68.html

The Influence of Company's Capital Cost on Investment Decision

Author

Listed:
  • 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

    Download full text from publisher

    File URL: http://www.eia.feaa.ugal.ro/images/eia/2014_1/Toma.pdf
    Download Restriction: no
    ---><---

    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.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jorgenson, Dale W. & Nomura, Koji, 2005. "The industry origins of Japanese economic growth," Journal of the Japanese and International Economies, Elsevier, vol. 19(4), pages 482-542, December.
    2. Joseph L. Pagliari, Jr. & James R. Webb, 1995. "A Fundamental Examination of Securitized and Unsecuritized Real Estate," Journal of Real Estate Research, American Real Estate Society, vol. 10(4), pages 381-426.
    3. Narcis Tulbure, 2015. "Choice In Context: Rationality, Contingency And Risk In The Dividend Policy," Risk in Contemporary Economy, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, pages 388-395.
    4. Eero Pätäri & Timo Leivo, 2017. "A Closer Look At Value Premium: Literature Review And Synthesis," Journal of Economic Surveys, Wiley Blackwell, vol. 31(1), pages 79-168, February.
    5. Karel Janda, 2019. "Earnings Stability and Peer Company Selection for Multiple Based Indirect Valuation," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 69(1), pages 37-75, February.
    6. Richard Day, 2008. "Micro foundations for meso and macro economic theory," Journal of Evolutionary Economics, Springer, vol. 18(2), pages 261-273, April.
    7. He, Junnan & Calder, Bobby J., 2020. "The experimental evaluation of brand strength and brand value," Journal of Business Research, Elsevier, vol. 115(C), pages 194-202.
    8. repec:dau:papers:123456789/9153 is not listed on IDEAS
    9. Ivan E. Brick & Hong-Yi Chen & Chia-Hsun Hsieh & Cheng-Few Lee, 2016. "A comparison of alternative models for estimating firm’s growth rate," Review of Quantitative Finance and Accounting, Springer, vol. 47(2), pages 369-393, August.
    10. A. Bruggeman & M. Hradisky & V. Périlleux, 2005. "Share prices, house prices and monetary policy," Economic Review, National Bank of Belgium, issue iii, pages 65-78, September.
    11. Georgy Idrisov, 2010. "Factors of Demand for Imported Goods for Investment Purpose to Russia," Research Paper Series, Gaidar Institute for Economic Policy, issue 138P.
    12. James Ming Chen, 2017. "Systematic Risk in the Macrocosm," Quantitative Perspectives on Behavioral Economics and Finance, in: Econophysics and Capital Asset Pricing, chapter 0, pages 239-274, Palgrave Macmillan.
    13. Fischer, Marcel & Jensen, Bjarne Astrup, 2019. "The debt tax shield in general equilibrium," Journal of Banking & Finance, Elsevier, vol. 100(C), pages 151-166.
    14. Dale W. Jorgenson & Mun S. Ho & Kevin J. Stiroh, 2005. "Growth of US Industries and Investments in Information Technology and Higher Education," NBER Chapters, in: Measuring Capital in the New Economy, pages 403-478, National Bureau of Economic Research, Inc.
    15. Ralf Diedrich & Stefan Dierkes & Hans-Christian Gröger, 2022. "A note on the cost of capital with fixed payout ratios," Review of Quantitative Finance and Accounting, Springer, vol. 59(4), pages 1559-1575, November.
    16. Matthew Serfling & Dragan Miljkovic, 2011. "Time series analysis of the relationships among (macro) economic variables, the dividend yield and the price level of the S&P 500 Index," Applied Financial Economics, Taylor & Francis Journals, vol. 21(15), pages 1117-1134.
    17. Lamia Ben Hamida, 2006. "The Study of Investment Movement Using Tobin's Q Model: Swiss Case 1948-1995," EcoMod2006 272100009, EcoMod.
    18. Philipp Krüger & Augustin Landier & David Thesmar, 2015. "The WACC Fallacy: The Real Effects of Using a Unique Discount Rate," Journal of Finance, American Finance Association, vol. 70(3), pages 1253-1285, 06.
    19. Prem Jain & Joshua Rosett, 2006. "Macroeconomic variables and the E/P ratio: Is inflation really positively associated with the E/P ratio?," Review of Quantitative Finance and Accounting, Springer, vol. 27(1), pages 5-26, August.
    20. Dirk Hackbarth & Richmond Mathews & David Robinson, 2014. "Capital Structure, Product Market Dynamics, and the Boundaries of the Firm," Management Science, INFORMS, vol. 60(12), pages 2971-2993, December.
    21. Stéphane Dees & Stefan Gebauer & Thomas Goncalves & Camille Thubin, 2022. "The Financing Structure of Non-Financial Corporations and Macro-Financial Implications in France," Working papers 880, Banque de France.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ddj:fseeai:y:2014:i:1:p:61-68. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Gianina Mihai (email available below). General contact details of provider: https://edirc.repec.org/data/fegalro.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.