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Assessing the cost of capital of a company's innovatively progressing business: Some features

Vol. 26, Iss. 2, FEBRUARY 2020

Received: 27 December 2019

Received in revised form: 23 January 2020

Accepted: 6 February 2020

Available online: 28 February 2020

Subject Heading: INVESTING

JEL Classification: G31, G32, M13, O32

Pages: 396–409

https://doi.org/10.24891/fc.26.2.396

Yashin S.N. National Research Lobachevsky State University of Nizhny Novgorod (UNN), Nizhny Novgorod, Russian Federation
jashinsn@yandex.ru

https://orcid.org/0000-0002-7182-2808

Koshelev E.V. National Research Lobachevsky State University of Nizhny Novgorod (UNN), Nizhny Novgorod, Russian Federation
ekoshelev@yandex.ru

https://orcid.org/0000-0001-5290-7913

Ivanov A.A. National Research Lobachevsky State University of Nizhny Novgorod (UNN), Nizhny Novgorod, Russian Federation
alexey.iff@yandex.ru

https://orcid.org/0000-0003-4299-4042

Subject This article deals with the issues of evaluating innovative projects of the firm, which are integrated into the operating enterprise and at the same time unusual for it. Estimating the weighted average capital cost in this case is the most difficult task to be handled in several steps.
Objectives The article aims to create a methodology for assessing the estimated weighted average capital cost in the case of analysis of innovative projects of the firm, which are integrated into the operating enterprise and at the same time unusual for it.
Methods The article proposes to assess not the estimated weighted average capital cost of the project, but the estimated weighted average capital cost of the firm as a whole, as the cost of capital invested in an innovative project will be exorbitant and inflated, if using just the weighted average capital cost of the project. This approach will take into account various systemic financial effects.
Conclusions and Relevance This approach makes it possible to take into account the integration of a new innovative project into the operating enterprise. The results of the study can be useful to financial analysts and top managers of companies to make proper decisions about the effectiveness of innovative projects.

Keywords: innovative project, weighed average capital cost, WACC

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