Application of Modern Methods for Assessing the Financial Performance of Investment Projects in Non-public Enterprises
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Academic Publishing UNWE (AP-UNWE)
Abstract
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Evaluating the cost-effectiveness of investment in real assets should be carried out taking into account whether the investor invests in a diversified portfolio, or assumes the entire risk. If the investor takes all the risk because they do not diversify their investments, then the cost of equity financing should be calculated with the Total Beta. Total Beta is significantly higher than the Market Beta. The cost of equity financing in public enterprises is significantly higher than that of public limited companies. The use of market beta in assessing the financial efficiency of investment projects for investments in non-public enterprises leads to incorrectly inflated estimates.
Keywords
Market beta, Total beta, Cost of equity, G31 - Capital Budgeting • Fixed Investment and Inventory Studies • Capacity