Relevant Criterion Rates in Capital Budgeting.

This paper develops, using graphical analysis, a series of models relating immediate investment opportunities to various investment opportunity costs and the costs of financing. The block nature of much long-term finance is recognized in the analysis and the situations in which different concepts are relevant to the establishment of criterion rates, when capital rationing does not exist, are identified. The author recommends that, in the absence of capital rationing or strongly held expectations of increases in financing costs in the near future, in practice criterion rates be based on the weighted average cost of the marginal set of finance. [ABSTRACT FROM AUTHOR]