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The Weighted Average Cost of Capital for the Analysis of Innovative Projects Integrated into the Company

In: Economic Issues of Social Entrepreneurship

Author

Listed:
  • Sergey N. Yashin

    (Lobachevsky State University of Nizhny Novgorod)

  • Egor V. Koshelev

    (Lobachevsky State University of Nizhny Novgorod)

  • Natalya A. Yagunova

    (Lobachevsky State University of Nizhny Novgorod)

  • Victor P. Kuznetsov

    (Minin Nizhny Novgorod State Pedagogical University)

  • Elena V. Romanovskaya

    (Minin Nizhny Novgorod State Pedagogical University)

Abstract

Purpose: The aim of the study is to create a methodology for assessing the estimated average weighted cost of capital in innovative projects that are integrated into an existing company, but at the same time, uncommon at the time. Design/methodology/approach: For this purpose, it is proposed to estimate not the estimated weighted average cost of the project capital, but the estimated weighted average cost of the company’s capital as a whole, because of the value of project capital will be unreasonably high. Such an approach will allow taking into account various systemic financial effects, for example, expressed in the fact that the cash flows of some projects partially finance the implementation of other projects. This is possible only in the case of projects already integrated into an existing company. Findings: The presented methodology allows this to be reflected both in the numerator of net present value—through the systemic financial effects of project cash flows and in the denominator of net present value—by discounting project cash flows not at the weighted average cost of capital for an individual project, but at the weighted average cost of company capital. Originality/value: The results of the study may be useful to financial analysts of companies and their top managers for making rational decisions regarding the effectiveness of innovative projects.

Suggested Citation

  • Sergey N. Yashin & Egor V. Koshelev & Natalya A. Yagunova & Victor P. Kuznetsov & Elena V. Romanovskaya, 2021. "The Weighted Average Cost of Capital for the Analysis of Innovative Projects Integrated into the Company," Springer Books, in: Elena G. Popkova & Bruno S. Sergi (ed.), Economic Issues of Social Entrepreneurship, pages 103-111, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-77291-8_10
    DOI: 10.1007/978-3-030-77291-8_10
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    More about this item

    Keywords

    Analysis of innovative projects; Estimated average weighted cost of capital;

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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