When a new project proposal calls for the use of existing, but currently idle, facilities, an opportunity cost should be charged to the new project for using those facilities. Capacity in place gives the firm an option to produce. When capacity is not available, the firm has an option to invest....

The conditions under which the adjusted present value, adjusted discount rate and flows to equity valuation methods all lead to identical asset values in the presence of corporate and personal taxes are examined. Three distinct sets of valuation and cost of capital expressions are derived...