Advertisement

Principles of Capital Budgeting for the Assessment of PPP Projects

  • Veronica Vecchi
  • Francesca Casalini
Chapter

Abstract

Capital budgeting, or investment appraisal, is the planning process used to determine whether a long-term investment in tangible assets, such as a new hospital building or item of medical equipment, is worth the deployment of cash through the capitalisation structure (debt and equity). Traditional capital budgeting/finance textbooks focus their attention on private investment. However, capital budgeting can also be used by public authorities when planning and appraising PPP projects. In this case, the goal is to find the point of economic and financial equilibrium, which means that project cash flows are affordable to the public authority while also remunerating private investors adequately for their costs. This chapter offers an overview of the essentials of capital budgeting, providing guiding principles for public managers, investors and financial analysts.

Keywords

Capital budgeting cost of capital Internal Rate of Return equity debt weighted average cost of capital 

References

  1. Graham, J., & Harvey, C. (2002). The Theory and Practice of Corporate Finance: Evidence from the Field. Journal of Financial Economics, 60, 60–78.Google Scholar
  2. Lintner, J. (1965). The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets. Review of Economics and Statistics, 47, 13–37.CrossRefGoogle Scholar
  3. Sharpe, W. F. (1964). Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk. Journal of Finance, 19, 425–442.Google Scholar
  4. Vecchi, V., Hellowell, M., della Croce, R., & Gatti, S. (2017). Government Policies to Enhance Access to Credit for Infrastructure-Based PPPs: An Approach to Classification and Appraisal. Public Money and Management,37, 133–140. https://doi.org/10.1080/09540962.2016.1266173.

Copyright information

© The Author(s) 2018

Authors and Affiliations

  • Veronica Vecchi
    • 1
  • Francesca Casalini
    • 1
  1. 1.SDA Bocconi school of managementBocconi UniversityMilanItaly

Personalised recommendations