In this article, we show how to value projects financed by subsidized loans using the standard WACC method, with three distinct assumptions concerning the debt ratio targeted by the firm. In fact, the subsidized loan amount used to calculate this debt ratio can be determined according to book...

In a recent paper, Jennergren analyzes four loan subsidy valuation methods suggested in authoritative text books. He shows that the first three can be derived from a unique formula whose value depends on the nonsubsidized loan amount that is assumed to be replaced by the subsidized loan. When...