We study the implementability of Black's (1988) elegant discounting rule. The rule overcomes thorny problems that traditional valuation approaches struggle with, namely identifying the market portfolio, measuring project risk, and assessing the market risk premium. We offer new theory, showing...

Corporate managers typically estimate the value of capital projects by discounting the project's expected future net cash flows at the cost of capital. The capital asset pricing model (CAPM) is generally used to estimate that cost. But, as anyone who has worked on the finance or business...