0% 10% 20% 30% 40% 50% 60% 70% 80%

Percent of CFO's who always or almost always use a given technique

APV

Profitability index

Simulation analysis

Book rate of return

Real options

Discounted payback

P/E multiples

Sensitivity analysis

Payback

NPV

IRR

Evaluation Technique

Fig. 2. Survey evidence on the popularity of different capital budgeting methods.We report the percentage of CFOs who always or almost always use a particulartechnique. IRR represents Internal Rate of Return, NPV is Net Present Value, P/E is the Price to Earnings ratio, and APV is Adjusted Present Value. The surveyis based on the responses of 392 CFOs.

0% 10% 20% 30% 40% 50% 60% 70% 80%

Percent of CFO's who always or almost always use a given method

Regulatory decisions

Investor expectations

Dividend discount Model

Multibeta CAPM

Arithmetic average historical return

CAPM

Cost of equitycapital method

Fig. 3. Survey evidence on the popularity of different methods to calculatethe cost of equity capital. We report the percentage of CFOs who always or almost always use a particular technique. CAPM represents the Capital Asset Pricing Model.The survey is based on the responses of 392 CFOs.

0% 10% 20% 30% 40% 50% 60% 70% 80%

Percent of CFO's who always or almost always adjust for a given risk

Momentum

Market-to-book ratio

Distress

Term structure

Commodity price

Size

Unexpected inflation

GDP or business cycle

Foreign exchange

Interest rate

Market risk (beta)

Multibeta risks for adjustingdiscount rates or cash flows

Fig. 4. Survey evidence on types of multibeta risk that are important for adjustingcash flows or discount rates. We report the percentage of CFOs who always or almost always adjust for a particular type of risk. The survey is based on the responses of 392 CFOs.

0% 10% 20% 30% 40% 50% 60%

Percent of CFO's identifying factor as important or very important

Customer/supplier comfort

Bankruptcy/distress costs

Comparable firm debt levels

Equity undervaluation/overvaluation

Transactions costs and fees

Interest tax savings

Level of interest rates

Insufficient internal funds

Earnings and cash flow volatility

Credit rating

Financial flexibility

Fig. 5. Survey evidence on some of the factors that affect the decision to issue debt. The surveyis based on the responses of 392 CFOs.

Debt policy factors

No target ratio or range19%

Somewhat tight target/range

34%Very strict target10%

Flexible target37%

Fig. 6. Survey evidence on whether firms have optimal or target debt-equity ratios. The surveyis based on the responses of 392 CFOs.

0% 10% 20% 30% 40% 50% 60% 70%

Percent of CFO's identifying factor as important or very important

Favorable investor impression vs. issuing debt

Similar amount of equity as same-industry firms

Sufficiecny of recent profits to fund activities

Stock is our "least risky" source of funds

Diluting holdings of certain shareholders

Maintaining target debt/equity ratio

Providing shares to employee bonus/option plans

If recent stock price increase, selling price "high"

Magnitude of equity undervaluation/overvaluation

Earnings per share dilution

Fig. 7. Survey evidence on some of the factors that affect the decision to issue common stock. The surveyis based on the responses of 392 CFOs.

Common stock factors

0% 10% 20% 30% 40% 50% 60%

Percent of CFO's identifying factor as important or very important

Protect bondholders against unfavorable actions by managers orstockholders

Other industry firms successfully use convertibles

Less expensive than straight debt

To attract investors unsure about riskiness

Avoiding short-term equity dilution

Ability to "call"/force conversion if/when necessary

Stock currently undervalued

Inexpensive way to issue "delayed" common stock

Fig. 8. Survey evidence on the factors that affect the decision to issue convertible debt. The surveyis based on the responses of 392 CFOs.

Convertible debt factors