Modifed pure present value
DOI:
https://doi.org/10.7251/ACE1420025OKeywords:
modified pure present value, cost of capital, risk adjusted discount rate, rate of reinvestment returnAbstract
The subject of this paper is a modified net present value, and how it could be a useful tool for real investment opportunities valuation when the firm’s opportunity rate of reinvestment is di?erent from its financing rate – cost of capital, or risk adjusted cost of capital (discount rate). This situation can occur for small business projects valuation, rapid growth business project valuation, for business combination valuation, and in situation when investment project have di?erent relevant or systematic risk from the firm’s systematic risk. When the firm’s opportunity rate of reinvestment is di?erent from its financing rate net present value method leads to some type of incorrect results that required new methodology for correct investment decision. One of the opportunities to solve this problem is use the modified net present value.
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