# Weighted Average Cost of Capital and Discount Rate

Published: 2021-07-02 02:18:45  Category: Investment, Money, Capital

Type of paper: Essay

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

Hey! We can write a custom essay for you.

All possible types of assignments. Written by academics

GET MY ESSAY The presentation should have; analysis of the project, your valuation of the investment, and your investment recommendation. You have to be clear and brief and explain the main assumptions and methodologies used in the analysis. The quality of the presentation will be considered in the grading. You have to hand in a handout of the presentation and an executive summary of no more than 2 pages.
Guideline Questions for you Report

Haven’t found the relevant content?
Hire a subject expert to help you with Weighted Average Cost of Capital and Discount Rate

Hire verified expert

What is the value of the project assuming the firm was entirely equity financed? What are the annual projected free cash flows? What discount rate is appropriate? NPV = \$1,228,485 Discount rate = cost of equity (from CAPM) = 15. 8% (see a model for projected free cash flows)
Value the project using the Adjusted Present Value (APV) approach assuming the firm raises \$750 thousand of debt to fund the project and keeps the level of debt constant in perpetuity. NPV of Levered Firm = \$1,528,485
Value the project using the Weighted Average Cost of Capital (WACC) approach assuming the firm maintains a constant 25% debt-to-market value ratio in perpetuity. NPV of Levered Firm = \$1,469,972
How do the values from the APV and WACC approaches compare?

How do the assumptions about financial policy differ across the two approaches?

The level of debt with the fixed debt policy is fixed and thus the interest tax shields have the same risk as to the debt. The discount rate for interest tax shields with the fixed debt policy, therefore, is the debt rate of 6. 8%.
With the 25% debt-to-value policy, the amount of debt varies with the value of the firm so the expected interest tax shields also vary with the value of the firm. These tax shields, therefore, should be discounted at the expected asset return 15. 8%, which is higher than the debt rate.

#### Warning! This essay is not original. Get 100% unique essay within 45 seconds!

GET UNIQUE ESSAY

We can write your paper just for 11.99\$

i want to copy...

This essay has been submitted by a student and contain not unique content