To understand their financial position, universities need to understand the long-term implications of their operating revenues and costs in relation to the financial assets they have available. Standard budgeting procedures that focus on one or two years at a time and use generally accepted...

We apply a contingent-claims technique and demonstrate how to value an emerging market hydro electric power investment under uncertainty. The investment project depends on reliable weather conditions and the capacity of a river to drive the water turbines. Uganda’s Bujagali dam project located...

This paper examines the effectiveness of multinational enterprises’ capital budgeting decisions as compared to the decisions of purely domestic enterprises. This is an important question because of multinationals’ role in allocating capital globally. Answering this question may also shed...

This paper considers an optimal contracting problem between an informed risk-averse agent and a principal, when the agent needs to perform multiple tasks, and the principal is active, namely she can influence some aspect of the agency relationship on top of the contract itself (i.e. capital...

This paper shows that the standard textbook formula for computing the present value of a future random cash flow – the discounted expected value – is formally incorrect and can generate significant errors when used to compute present values. The correct present value method is provided as...

We survey 290 LATAM firms on capital budgeting, cost of capital and capital structure issues. We analyze the results and compare them to those of other studies. We interpret differences according to special features characterizing both emerging markets and SME. We observe that LATAM firms make...

This Paper analyses firms’ capital allocation decisions when optimal capital structure is linked to the risk of underlying assets and when equity capital is costly and cannot be raised instantaneously. In the model, division managers receive private information and authority is delegated to...

In a simple model of capital budgeting in a diversified firm where headquarters have limited power, we show that funds are allocated towards the most inefficient divisions. The distortion is greater, when the investment oppotunities of the firm’s divisions are more diverse. We test these...

In this paper the author proves that the Expected Net Future Value (ENFV) criterion can lead a risk neutral social planner to reject projects that increase expected utility. By contrast, the Expected Net Present Value (ENPV) rule correctly identifies the economic value of the project. While the...

This paper analyzes the optimal capital budgeting mechanism when divisional managers are privately informed about the arrival of future investment projects. Consistent with field study evidence, an optimal allocation mechanism can include a stipulation that a capital request for discretionary...