Published online by Cambridge University Press: 06 April 2009
Recently, the appropriateness of the weighted average cost of capital for making decisions on capital structure and the selection of projects has been seriously questioned. Arditti [1] showed that when project lives were finite, the weighted average cost of capital was not appropriate for valuing the firm. Beranek [2] demonstrates that when the objective is shareholder wealth maximization, the appropriate discount rate for capital budgeting decisions for finite lived projects n > 1 is not the traditional weighted average cost of capital.