In an asset-pricing model calibrated to match the standard asset pricing empirical properties—in particular, the time-variation in the equity premium—we calculate the value implications of sub-optimal capital budgeting decisions. Specifically, we calculate that an investment policy that ignores the time variation in the equity premium, such as would occur with a cost of capital using a static CAPM-like model, incurs a 11.7% value loss. We also document the implications for a firm’s asset returns in this context.