Still Many Ways to Skin a Capital Cost
Harvard Business Review
MARCH 10, 2011
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. To make sure they're comparing apples to apples, they discount those future cash flows to arrive at their net present value. They believed managers needed a better way to come up with a number to represent their cost of capital, and that's what they were presenting.