Hostname: page-component-cd9895bd7-dk4vv Total loading time: 0 Render date: 2025-01-05T13:12:50.914Z Has data issue: false hasContentIssue false
  • English
  • Français

Adjusting for Risk in the Capital Budget of a Growth-Oriented Company: Comment**

Published online by Cambridge University Press:  19 October 2009

Robert H. Litzenberger  and
Charles P. Jones
Get access Rights & Permissions [Opens in a new window]

Extract

Many important contributions to the body of theoretical literature in business finance are built upon the pioneering efforts of others. In a recent article in this Journal, Vaughn and Bennett attempt to build a risk adjusted capital budgeting framework upon foundations laid by Gordon, Miller and Modigliani, Sharpe, Solomon, and others. Unfortunately, they are building a house of straw. Their knowledge of the contributions of their predecessors is superficial, and their approach is inconsistent with some of the basic tenets of business finance.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 4 , Issue 3 , September 1969 , pp. 301 - 304
Copyright
Copyright © School of Business Administration, University of Washington 1969

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

1.Gordon, M. and Shapiro, E., “Capital Equipment Analysis: The Required Rate of Profit,” reprinted in Solomon, Ezra, ed., The Management of Corporate Capital. Glencoe, Ill.: Free Press of Glencoe (1959), pp. 141–149.Google Scholar
2.Friedrich, and Lutz, Vera, The Theory of Investment of the Firm. Princeton: Princeton University Press, 1951.Google Scholar
3.Miller, M. and Modigliani, F., “Some Estimates of the Cost of Capital to the Electric Utility Industry, 1954–57,” American Economic Review (June, 1966), pp. 333–391.Google Scholar
4.Robichek, A. and Myers, S., “Conceptual Problems in the Use of Risk-Adjusted Discount Rates,” The Journal of Finance (December, 1966), pp. 727–730.CrossRefGoogle Scholar
5.Sharpe, W., “Risk-Aversion in the Stock Market: Some Empirical Evidence,” The Journal of Finance (September, 1965), pp. 416–422.CrossRefGoogle Scholar
6.Solomon, E., The Theory of Financial Management. New York: Columbia University Press, 1963.Google Scholar
7.Tuttle, D. and Litzenberger, R., “Leverage, Diversification and Capital Market Effects on a Risk-Adjusted Capital Budgeting Framework,” The Journal of Finance (June, 1968), pp. 427–443.CrossRefGoogle Scholar
8.Vaughn, D. and Bennett, H., “Adjusting for Risk in the Capital Budget of a Growth-Oriented Company,” Journal of Financial and Quantitative Analysis (December, 1968), pp. 445–461.CrossRefGoogle Scholar