Still Many Ways to Skin a Capital Cost

Harvard Business Review

When executives evaluate a potential investment, whether it's to build a new plant, enter a new market, or acquire a company, they weigh its cost against the future cash flows they expect will spring from it. The motivation behind it, as with many, many articles published over HBR's nearly 90-year history, was to take an effective practice developed in one corner of industry and spread it to managers everywhere. The same is true for the CAPM. ".

DCF 14

Why Sit on All that Cash? Firms Uncertain on Cost of Capital

Harvard Business Review

Only 46 percent use the perpetuity growth model, while 27 percent develop an explicit cash flow forecast for the entire life of a project. Fully 72 percent develop multiple cash flow scenarios representing the expected outcome as well as best- and worst-case outcomes, which are then discounted. Book vs. Market Weighting Factors Used for Debt and Equity in Calculation of WACC. . Current market debt/equity ratio. Current book debt/current market equity ratio.

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What Private Equity Investors Think They Do for the Companies They Buy

Harvard Business Review

We also know that private equity funds have outperformed public equity markets over the last three decades , even after the fees they charge are accounted for. In operational engineering, PE firms develop industry and operating expertise that they bring to bear to add value to their portfolio companies. Furthermore, few PE investors explicitly use the capital asset price model (CAPM) to determine a cost of capital. Financial markets Finance & Accounting

CAPM 12

Why Those Guys Won the Economics Nobels

Harvard Business Review

The Swedes had given the award to one guy, Eugene Fama , who is best known for originating something called the efficient market hypothesis, another guy, Robert Shiller , who once called the efficient market hypothesis “one of the most remarkable errors in the history of economic thought,” and a third guy, Lars Peter Hansen , whose work is so dense that even academic economists couldn’t satisfactorily explain it or its connection to Fama and Shiller.

CAPM 12

Stop Trying to Predict Which New Products Will Succeed

Harvard Business Review

How you answer this question may be the most important factor in how you design your product development process — and, ultimately, in whether your business succeeds or fails. Is market performance predictable for a specific product or class of products? respectively, suggesting that market risk is the major driver of our inability to predict. Look at the variance of your new-market products. Product development