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Some New Capital Budgeting Theorems

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  • Beranek, William

Abstract

It has been shown by Haley and Schall [4], Modigliani and Miller [7], Myers [8], Solomon [10], and Vickers [12] that if (1) a firm's investments always yield cash flows that are constant forever, and if (2) the firm maintains, likewise into perpetuity, a constant debt/equity ratio in terms of market values, a constant per period cost of capital can be derived which involves as weights the market values of debt and equity. Since these sufficient conditions, which were set forth for positive purposes, pose severe limitations on the usefulness of these results for normative purposes, derivations which are less restrictive would be helpful for decision making.

Suggested Citation

  • Beranek, William, 1978. "Some New Capital Budgeting Theorems," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 13(5), pages 809-823, December.
    • Handle: RePEc:cup:jfinqa:v:13:y:1978:i:05:p:809-823_01
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    1. Groh, Alexander P., 2004. "Risikoadjustierte Performance von Private Equity-Investitionen," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 21382, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).

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