This discount rate was quite appropriate in the past when most of the operations were based in US. However, the recent expansion of AES into different geographical areas has exposed the diverse operations of the company to varied amounts of risk. The company is now contemplating the use of different discount rates for each of its projects. It is suggested that the costs of equity and debt are adjusted for sovereign spread — the difference in the riskfree rates of the local country and the US.
Historically, AES utilized the very same cost of capital for all its capital budgeting, however the business's global growth has actually raised questions about this method and whether a single cost of capital effectively represents the various threats AES deals with in its varied services and varied atmospheres.
The business just recently agonized heavy losses from currency declines in South America and regulative modifications in other nations.
The director of the business preparation group is establishing an approach for appraising various nation and job threats, and the case enables trainees to utilize this method to determine the cost of capital for 15 various tasks worldwide.
Trainees need to think about how a worldwide company can represent varying threats in examining its worldwide functions and in investing abroad. To get executable spreadsheets coursewareplease contact our customer care department This is just a sample partial case solution.
Please place the order on the website to order your own originally done case solution.In the past, AES used the same cost of capital for all of its capital budgeting, but the company's international expansion has raised questions about this approach and whether a single cost of.
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.
ARLINGTON, Va(BUSINESS WIRE)--The AES Corporation (NYSE: AES) today announced that Executive Vice President and Chief Financial Officer, Tom .
Globalizing the Cost of Capital and Capital Budgeting at AES the need for a simple, straightforward process that could be implemented accurately and consistently throughout the organization.
The financial crisis led AES to create a new planning group, charged with valuing the company’s assets and developing a methodology for calculating the cost of capital for AES’s diverse businesses around the world.
In the past, AES had used a 12% cost of capital to evaluate all projects worldwide. Globalizing the Cost of Capital and Capital Budgeting at AES, , Case # , Describes AES' attempt to create a new method of estimating the cost of capital it guide its global capital .