Leverage, Diversification and Capital Market Effects on a Risk-Adjusted Capital Budgeting Framework

Abstract

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Structural Planning Under Controllable Business Risk

“…Therefore, under idealized uncertainty, our optimum production conditions and risk‐adjusted discount rates reduce to the investment criterion proposed by Hamada [4], Mossin [9], and Tuttle and Litzenberger [13]. (6) and (17) are Tuttle and Litzenberger's criterion which, as Litzenberger and Budd [7] have shown, is equivalent to the criteria of Hamada and Mossin 5 .…”

“…The effect of investment decisions on business risk has been studied by several authors (Hamada [4], Mossin [9], and Tuttle and Litzenberger [13]) under the conditions of idealized uncertainty assumed in the Sharpe‐Lintner capital market theory. The investment criterion derived in this paper is shown to be generalization of theirs, and of the one obtained by Modigliani and Miller [8] under the constant risk class assumption.…”

Portfolio Analysis, Stock Valuation and Capital Budgeting Decision Rules for Risky Projects

“…4 and 5), in that they result from valuation models developed in a portfolio framework. Similar attempts to develop capital budgeting rules from the Sharpe‐Lintner portfolio models have been made by Tuttle and Litzenberger [18] and Litzenberger [8]. Another recent contribution which includes corporate leverage in a portfolio valuation model is that of Hamada [3].…”

Changes in the Supply of Money, the Firm's Market Value and Cost of Capital

“…It can easily be shown that this acceptance criteria may be reduced to the specification of the required rate of return or hurdle rate on investment, , discussed by Tuttle and Litzenberger [20] and Litzenberger and Budd [9], …”