The Weighted Average Cost of Capital for the Analysis of Innovative Projects Integrated into the Company

Sergey N. Yashin (), Egor V. Koshelev (), Natalya A. Yagunova (), Victor P. Kuznetsov () and Elena V. Romanovskaya ()
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Sergey N. Yashin: Lobachevsky State University of Nizhny Novgorod
Egor V. Koshelev: Lobachevsky State University of Nizhny Novgorod
Natalya A. Yagunova: Lobachevsky State University of Nizhny Novgorod
Victor P. Kuznetsov: Minin Nizhny Novgorod State Pedagogical University
Elena V. Romanovskaya: Minin Nizhny Novgorod State Pedagogical University

A chapter in Economic Issues of Social Entrepreneurship, 2021, pp 103-111 from Springer

Abstract: Abstract Purpose: The aim of the study is to create a methodology for assessing the estimated average weighted cost of capital in innovative projects that are integrated into an existing company, but at the same time, uncommon at the time. Design/methodology/approach: For this purpose, it is proposed to estimate not the estimated weighted average cost of the project capital, but the estimated weighted average cost of the company’s capital as a whole, because of the value of project capital will be unreasonably high. Such an approach will allow taking into account various systemic financial effects, for example, expressed in the fact that the cash flows of some projects partially finance the implementation of other projects. This is possible only in the case of projects already integrated into an existing company. Findings: The presented methodology allows this to be reflected both in the numerator of net present value—through the systemic financial effects of project cash flows and in the denominator of net present value—by discounting project cash flows not at the weighted average cost of capital for an individual project, but at the weighted average cost of company capital. Originality/value: The results of the study may be useful to financial analysts of companies and their top managers for making rational decisions regarding the effectiveness of innovative projects.

Keywords: Analysis of innovative projects; Estimated average weighted cost of capital (search for similar items in EconPapers)
JEL-codes: G31 G32 M13 O32 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-030-77291-8_10

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DOI: 10.1007/978-3-030-77291-8_10

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