The Aes Case Study

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Professor Mihir Desai and Research Associate Doug Schillinger prepared this case. HBS cases are developed solely as the basis for class

discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.

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MIHIR DESAI

Globalizing the Cost of Capital and Capital

Budgeting at AES

In June 2003, Rob Venerus, director of the newly created Corporate Analysis & Planning group at

The AES Corporation, thumbed through the five-inch stack of financial results from subsidiaries and

considered the breadth and scale of AES. In the 12 years since it had gone public, AES had become a

leading independent supplier of electricity in the world with more than $33 billion in assets stretched

across 30 countries and 5 continents. Venerus now faced the daunting task of creating a methodology

for calculating costs of capital for valuation and capital budgeting at AES businesses in diverse

locations around the world. He would need more than his considerable daily dose of caffeine to

point himself in the right direction.

Much of AES’s expansion had taken place in developing markets where the unmet demand for

energy far exceeded that of more developed countries. By 2000, the majority of AES revenues came

from overseas operations; approximately one-third came...