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A note on the valuation of subsidized Loans - Working paper

Author

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  • Axel Pierru

    (IFPEN - IFP Energies nouvelles)

  • Denis Babusiaux

    (IFPEN - IFP Energies nouvelles)

Abstract

In this paper, we show how to value projects financed by subsidized loans using the standard WACC method, with three distinct assumptions concerning the debt ratio targeted by the firm. In fact, the subsidized loan amount used to calculate this debt ratio can be determined according to book value, economic value or market value. This three definitions are equivalent when considering a non-subsidized loan. In each case, the value of a subsidized loan is determined with the help of a general dynamic non-linear model for the selection of projects with the option of subsidized financing. As a result, when considering economic value, we find the adjustment advocated by Myers (1974) in his Adjusted Present Value approach.

Suggested Citation

  • Axel Pierru & Denis Babusiaux, 2007. "A note on the valuation of subsidized Loans - Working paper," Working Papers hal-02469345, HAL.
    • Handle: RePEc:hal:wpaper:hal-02469345
    Note: View the original document on HAL open archive server: https://ifp.hal.science/hal-02469345
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    References listed on IDEAS

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    1. Christophe Barret & Philippe Chollet, 1990. "Canadian Gas Exports : Modeling a Market in Disequilibrium," Working Papers hal-02432570, HAL.
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    Cited by:

    1. Albert Banal-Estañol & Jeremy Eckhause & Olivier Massol, 2015. "Incentives for early adoption of carbon capture technology: further considerations from a European perspective," Working Papers hal-02475485, HAL.
    2. Vincent Brémond & Emmanuel Hache & Tovonony Razafindrabe, 2015. "On the link between oil price and exchange rate : A time-varying VAR parameter approach," Working Papers hal-03206684, HAL.
    3. Emmanuel Hache, 2018. "Do renewable energies improve energy security in the long run?," International Economics, CEPII research center, issue 156, pages 127-135.

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