Globalizing the Cost of Capital and Capital Budgeting at Aes

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GLOBALIZING THE COST OF CAPITAL AND CAPITAL BUDGETING AT AES 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? 3. Does this make sense as a way to do capital budgeting?

4. How big a value difference does this new approach make to the Pakistan project? 5. How do these cost of capital modifications translate into changed probabilities in terms of real events?

Globalizing the Cost of Capital and Capital Budgeting at AES 1. Evaluate the capital budgeting method used historically by AES? What are the policy’s good and bad points? 2. If Venerus implements the proposed methodology, what would be the range of discount rates in use around the world? 3. Does this proposed methodology make sense as a way to do capital budgeting analysis? 4. What is the value of the Pakistan project using the cost of capital derived from the proposed methodology? What would be the value of the project if it was located in the U.S.?

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 the U.S.

Suggested Questions
1.How would you evaluate the capital budgeting method used historically by AES? What’s good or bad about it? 2.If Venerus implements the suggested methodology, what would be the range of discount rates 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 was 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...
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