Abstract
ABSTRACT The duration of a capital project is a risk measure. Previous literature calculates duration using cash flows from operations, assuming a separation between the investing and financing decisions. In practice, many projects involve their own specific financing, and analyzing the investment apart from its concomitant debt is improper. In such cases, the net present value should be calculated using the equity residual method. A project's interest sensitivity depends on the gap between the duration of the operating cash flows and the appropriately weighted duration of debt. A formal derivation and numerical example show how gap management can be used to mitigate a project's risk.
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