A note on the valuation of subsidized Loans - Working paper

Axel Pierru and Denis Babusiaux
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Denis Babusiaux: IFPEN - IFP Energies nouvelles

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Abstract: In this paper, 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 firm. 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 definitions 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 financing. As a result, when considering economic value, we find the adjustment advocated by Myers (1974) in his Adjusted Present Value approach.

Date: 2007-01
Note: View the original document on HAL open archive server: https://ifp.hal.science/hal-02469345
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Citations: View citations in EconPapers (3)

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