In this study we conduct a survey to investigate how firms make investment decisions.
The focus of earlier surveys has been whether or not firms use discounted cashflow methods and
how they determine the appropriate discount rates. The primary findings of these studies are as
follows: First, over time, firms have shown an increasing tendency to rely on discounted cash
flow (DCF) methods to evaluate projects. Second, most firms apparently use their weighted
average cost of capital (WACC) as the discount rate in evaluating their projects. Third, it also
seems to be the case that in computing their discount rates, firms typically infer the cost of equity
from the capital asset pricing model (CAPM). Figure 2 displays the increased usage of these
models and techniques over time.