Cost-of-Capital Estimation and Capital-Budgeting Practice in Australia

Abstract

We use a sample survey to analyse the capital-budgeting practices of Australian listed companies. We find that NPV, IRR and Payback are the most popular evaluation techniques. Real options techniques have gained a toehold in capital budgeting but are not yet part of the mainstream. Discounting is typically by the weighted average cost of capital, assumed constant for the life of the project, and with the same discount rate across divisions. The WACC is usually based on target weights for debt and equity. The CAPM is widely used, while other asset pricing models are not. The discount rate is reviewed regularly and is updated as conditions change. In most companies, project analysis takes no account of the value of imputation tax credits. Australian corporate practice is generally consistent with the practice of Australian price regulators, except that regulators take into account the value of imputation tax credits when computing the cost of capital.

Practices of performance measurement in companies in the Republic of Serbia

“…Our results support G. Truong et al (2008), who concluded that, in Australia, projects were usually evaluated using the NPV, the IRR and the PP, and S. Verma et al (2009), with very similar results, but on the corporate practice in India. Our fi ndings slightly diff er from the fi nding of the study conducted by L. Dedi and S. Orsag (2007) in Croatian fi rms, who found out the following priority list of metrics: 1) the IRR (59%), 2) the PP (56%) and 3) the NPV (42%).…”

“…The overall conclusion of the study was that practice signifi cantly deviates from theory, especially in the domain of the capital structure, but also in the domain of capital budgeting. After this study, a number of later studies sought to confi rm or deny the Graham-Harvey fi nding or to analyze the practice from new perspectives Sandahl & Sjögren, 2003;Brounen, De Jong & Koedijk, 2004;Dedi & Orsag, 2007;Truong, Partington & Peat, 2008;Verma, Gupta & Batra, 2009;Baker, Dutt a & Saadi, 2011;Correia, 2012;Andrés, Fuente & San Matin, 2014).…”

Como os gestores brasileiros tomam suas decisões de custo de capital?

“…Block (2003) Truong et al (2008) majoritariamente apontam o uso da estrutura de capital alvo. Contrariando essa linha, a Tabela 6 indica que o uso da estrutura de capital corrente é a preferida por 64% dos respondentes, enquanto que apenas 22% consideram adequado o uso da estrutura de capital alvo.…”

“…Essa prática não difere muito dos trabalhos americanos de Bruner et al (1998) e Brotherson et al (2013) que identificam a prática de revisão anual, respectivamente, de 37% e 50%. Trinta e dois por cento das empresas australianas revisam o cálculo do WACC anualmente, enquanto que 30% o fazem sempre que há um novo projeto, segundo Truong et al (2008).…”

“…Apesar de tradicionais e muito difundidas, as teorias e modelos relacionados com a estrutura e o custo de capital ainda não possuem consenso em termos de aplicação prática. Muitos têm sido os questionamentos sobre a existência de uma estrutura ótima, como obtê-la e mensurá-la em diversos países (Bruner et al, 1998;Graham e Harvey, 2001, 2002Block, 2003, Correia e Cramer, 2008Truong et al, 2008;Brotherson et al, 2013). Gestores financeiros ainda se fazem perguntas como: As dívidas consideradas devem ser apenas de longo ou de curto prazo também?…”