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| Author: | Chung, K. H. Kim, K. H. |
| Title: | Growth opportunities and investment decisions: A new perspective on the cost of capital |
| Journal: | Journal of Business Finance and Accounting
1997 : APR, VOL. 24:3/4, p. 413-424 |
| Index terms: | OPTION PRICES CAPITAL COSTS CAPITAL BUDGETING GROWTH OPTIONS INVESTMENT PLANNING |
| Language: | eng |
| Abstract: | This paper shows that old wisdom on risk-adjusted hurdle rates for firms' investment decisions won't be a reliable guide once we recognize the options feature of firm's growth opportunities. The results suggest some implications for firms' investment decisions in the managerial point of view. Managers are unlikely to have all the information necessary for the calculation of the exact hurdle rate. The results of this study provide some indication regarding the direction of adjustments managers should make on market capitalization rates given their judgement on the relative risk of proposed project as compared to that of existing asset and future capital expenditures. |
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