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


  • John B. White

    (Georgia Southern University)

  • Morgan P. Miles

    (Georgia Southern University)


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.

Suggested Citation

  • John B. White & Morgan P. Miles, 1993. "Capital Budgeting for Small Businesses: An Appropriate Modification of Net Present Value," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 3(1), pages 79-95, Fall.
  • Handle: RePEc:pep:journl:v:3:y:1993:i:1:p:79-95

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    References listed on IDEAS

    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. James S. Moore & Alan K. Reichert, 1989. "A Multivariate Study of Firm Performance and the Use of Modern Analytical Tools and Financial Techniques," Interfaces, INFORMS, vol. 19(3), pages 79-87, June.
    3. 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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    More about this item


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

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance


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