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Cost of Capital Tutorial
The goal of this tutorial is to give the reader a thorough understanding of o...
From Richard Malekian
Risk And Capital Budgeting
Professor XXXXXCourse Name / Number
2
Choosing the Right DiscountRate
N N
r CF r CF r CF r CF CF NPV
)(...)()()(
+++++++++=
1111
332210
The numerator focuses on project cash flows,covered in chapter 8: The denominator is the discount rate, thefocus of chapter 9.
Thedenominatorshould:
Reflect the opportunity costs of the firm’sinvestors.Reflect the project’s risk.Be derived from market data.
3
A Simple Case
Firm is financed with 100%equity.Project is similar to the firm’sexisting assets.
Project discount rate is easy to determine if we assume :In this case, the appropriate discount rateequals the cost of equity.Cost of equity estimated using the CAPM
))(()(
F mi F i
R R E β R R E
−+=
of 00
Capital Budgeting Presentation
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| Upload Date: | 02/13/2009 |
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excellent piece of work.Can you pls consider sharing the same.
please giv da download o[tion