To reevaluate the cost of capital and cost of debt the sovereign risk is added to them this results in the us’s being constant and pakistan’s cost of capital rising to 171% and its cost of debt rising to 1797. 1 how would you evaluate the capital budgeting method used historically by aes 2 if you implemented the methodology suggested by venerus, what would be the range of discount rates one would use around the world. With electricity companies around the world, aes corporation seeking methodology for calculating the cost of capital for various businesses and potential projects in the past, aes uses the same cost of capital for all of its capital budget, but also the international expansion of the company has raised questions about this approach, and whether one takes into account the cost of capital. Home » globalizing the cost of capital and capital budgeting at aes globalizing the cost of capital and capital budgeting at aes hbs case analysis this entry was posted in harvard case study analysis solutions on by case solutions. Sunday, march 15, 2009 cost of capital at aes evaluating the historical capital budgeting method currently aes employs project finance framework project finance tends to be used in projects with tangible assets with predictable cash flows in which construction and operating targets can be easily established through explicit contract.
Cost of capital at aes evaluating the historical capital budgeting method currently aes employs project finance framework project finance tends to be used in projects with tangible assets with predictable cash flows in which construction and operating targets can be easily established through explicit contract the key to aes projects financing lies with the precise forecasting of cash flows. Globalizing the cost of capital and capital budgeting at aes, 2004, case # 204-109, describes aes' attempt to create a new method of estimating the cost of capital it guide its global capital budgeting decisions. The wacc calculation uses the higher of aes corp's wacc or the risk free rate, because no investment can have a cost of capital that is better than risk free this situation may occur if the beta is negative and aes corp uses a significant proportion of equity capital. Globalizing the cost of capital & capital budgeting at aes case solution political risk the current financial project framework does not take into account the political risk associated with the other countries where aes is expanding.
Sample essay: globalizing the cost of capital and capital budgeting at aes before setting up business either international or local, there are some factors to put into consideration even if your business is doing well and expanding at a high rate one must put into consideration the risks that ascertain that particular business. To reassess the cost of capital and cost of debt the crowned head hazard is added to them this consequences in the u s ’s being changeless and pakistan’s cost of capital lifting to 17 1 % and its cost of debt lifting to 17 97 %. The modified cost of capital that has been calculated is adjusted with the whole threat rating for pakistan now aes seeks to finance the cost of improvement and design in the task on remarkably aes cost of capital case solution leveraged basis.
Citation: desai, mihir a globalizing the cost of capital and capital budgeting at aes harvard business school spreadsheet supplement 204-707, march 2004. Arec 550 homework 7 globalizing the cost of capital budgeting at aes chia yun ,tsai(debbie) 2013/3/22 the reason why rob venerus used the cost of capital concept to improve upon what aes had used in the past for a discount rate is because the old model always used the same discount rate for the model. Globalizing the cost of capital and capital budgeting at aes case solution & analysis, case study solution every solution is prepared from scratch, top quality, plagiarism free. For the exclusive use of a guerra, 2015 9-204-109 rev: october 23, 2006 mihir desai globalizing the cost of capital and capital budgeting at aes in june 2003, rob venerus, director of the newly created corporate analysis & planning group at.
As of today, the aes corp's weighted average cost of capital is 45%the aes corp's roic % is 284% (calculated using ttm income statement data) the aes corp earns returns that do not match up to its cost of capital it will destroy value as it grows. Search results for 'globalizing the cost of capital aes how does the adjusted cost of capital for the pakistan project reflect the probabilities of real events what does the discount rate adjustment imply about expectat. The cost of capital at aes topics: currency, cost of capital definition: cost of capital is the rate of return that a company must earn on its project investments to maintain its market value and attract funds. With power generation companies all over the world, aes corp is seeking a method of calculating the cost of capital for various companies and potential projects. Globalizing the cost of capital and capital budgeting at aes in june 2003, rob venerus, director of the newly created corporate analysis & planning group at the aes corporation, thumbed through the five-inch stack of financial results from subsidiaries and considered the breadth and scale of aes.
Previously, aes used exactly the same cost of capital its its capital budgeting, however the company's worldwide expansion has elevated questions regarding this method and whether just one cost of capital adequately makes up about the various risks aes faces in the diverse companies and various conditions. Aes cost of capital case study solution with electrical energy producing services all over the world, aes corp is looking for an approach for computing the costs of capital for its different companies and prospective tasks. For example, the issue cropped up for aes in south america when they had a large amount of capital tied up with argentina, venezuela and brazil in the late 1990s, brazil began to see shortages of energy because demand began to exceed supply, and was exacerbated by an expansive drought.
Globalizing the cost of capital and capital budgeting at aes group d alessandro maysoon andrew diogo claire luca aes corporation electrical power generation and distribution company founded in 1981 in the us company goes public in 1991 international expansion started in 1991-1992 organized around four lines of business: contract generation competitive supply large utilities growth. Transcript of aes case study globalizing the cost of capital and capital budgeting at aes dimitra athanasopoulou - nunzio incógnito - andré fankhauser typical structure of an aes investment aes parent corporation assets liabilities equity subsidiary equity holding co us bank debt.
View homework help - aes cost of capital from fin 5503 at nova southeastern university wacc calculations for lal pir (pakistan) cost of equity = risk free rate us risk premium unlevered beta tax. Abstract with electricity generating businesses around the world, aes corp is seeking a methodology for calculating the cost of capital for its various businesses and potential projects. Currently aes seeks to finance the cost of development and construction of the project on highly leveraged basis high leveraged in non-recourse project financing permits aes to put less in capital to put at risk permits aes to finance the project without diluting its equity investment in the project. Introduction the issue with the case is that the aes is using traditional method of wacc which according to their newly hired corporate planning officer is faulty.