This paper sets forth a capital budgeting technique that is both theoretically correct and sensitive to the special financing needs of the small business. This technique involves evaluating cash flows and determining if they are sufficient to meet the loan payment schedule. A sufficient amount of cash flow must remain after debt obligations are met to compensate the equity investment. Net operating cash flows are discounted at the cost of equity while the tax shield from interest and depreciation is discounted at the cost of debt.
Capital Budgeting, Small Business, Net Present Value, NPV
White, John B. and Miles, Morgan P.
"Capital Budgeting for Small Businesses: An Appropriate Modification of Net Present Value,"
Journal of Small Business Finance:
1, pp. 79-95.
Available at: http://digitalcommons.pepperdine.edu/jef/vol3/iss1/6