How does the adjusted cost of capital

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International Corporate Finance Assignment

Globalizing the Cost of Capital and Capital Budgeting at AES ("AES") Case Study

1. How would you evaluate the capital budgeting method used historically by AES?  What is good or bad about it?

2. If Venerus implements the suggested methodology, what would be the range of discount rates (i.e., adjusted WACCs) that AES would use around the world?

3. Does this make sense as a way to do capital budgeting?

4. What is the value of the Pakistan project using the cost of capital derived from the new methodology?  If this project were located in the U.S., what would its value be?

5. 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 expectations for the project because it is located in Pakistan and not in the U.S. under the following assumptions:

  • LalPir discounted value at Red Oak discount rate with 100% expropriation probability in 2009.
  • LalPir discounted value at Red Oak discount rate with 50% haircut every year.

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Reference no: EM131449610

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len1449610

4/3/2017 7:25:46 AM

ONLY QUESTION 5. Question #5 is a hybrid. I am only in charge of the narrative part. I need references and plagiarism report, which I'm aware you guys already include. The question to answer for Question #5 is How can you Structure the project from day 1 in Pakistan or any other risky market place from hostile behavior? (mitigate risk) from even a hostile government will think twice not to take away plant or charge higher taxes)) WEB research not more than 1.5 PAGE 10 am).

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