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Adjustment of the Standard WACC Method to Subsidized Loans: A Clarification/Ajuste del metodo estandar del Costo medio ponderado del Capital (CMPC) en préstamos subsidiados: Una Aclaracion

Axel Pierru () and Babusiaux Denis ()
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Babusiaux Denis: Center for Economics and Management, IFP School, IFP, 228-232 avenue Napoléon Bonaparte, 92852 Rueil-Malmaison, France.Phone: +33-147526280

Estudios de Economia Aplicada, 2007, vol. 25, No 1, 364 pages

Abstract: In this article, we show how to value projects financed by subsidized loans using the standard WACC method, with three distinct assumptions concerning the debt ratio targeted by the fi rm. In fact, the subsidized loan amount used to calculate this debt ratio can be determined according to book value, economic value or market value. This three defi nitions are equivalent when considering a non-subsidized loan. In each case, the value of a subsidized loan is determined with the help of a general dynamic non-linear model for the selection of projects with the option of subsidized fi nancing. As a result, when considering economic value, we fi nd the adjustment advocated by Myers (1974) in his Adjusted Present Value approach. Este articulo describe la manera de valorar proyectos financiados con préstamos subsidiados usando el método estandar del costo medio ponderado del capital, bajo tres supuestos concernientes al nivel de endeudamiento fijado por la empresa. El valor de los préstamos subsidiados usado para calcular el nivel de deuda puede ser determinado segun el valor contable, valor economico o valor de mercado. Estas tres defi niciones son equivalentes cuando se consideran los prestamos sin subsidios. En cada caso, el valor de un prestamo subsidiado es determinado con la ayuda de un modelo general dinamico no-linear para la seleccion de proyectos con la opcion de financiacion subsidiada. Como resultado, cuando se considera un valor economico, se consigue la modificacion sugerida por Myers (1974) en su metodo del valor presente ajustado.

Keywords: WACC; subsidized loan; project valuation; capital budgeting/CMPC; prestamo subsidiado; estudios de rentabilidad. (search for similar items in EconPapers)
JEL-codes: G30 G31 G32 (search for similar items in EconPapers)
Date: 2007
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