MBA 530 Test 3

• = WdRd(1-T) + WpRp + WsRs
• Weighted Avg Cost of Capital

new debt

avg rate on previously issued debt.  also historical rate

large project w/ special financing that get's a claim on project specific cash flows.

% flotation cost (% of proceeds paid)

= Rf + b(Rm-Rf)

Rm=RHATm = D1/P0 + g

D1/(Rs-g)

= Rs = D1/P0 + Expected g

• = RHATe = D1/(P0(1-F)+g)
• Cost of common equity

• Stock & Bond Market
• Market Risk Premium
• Tax Rates

• Capital Structure Policy
• Divident Policy
• Investment Policy

• Accept both Projects
• Accept Highest NPV if > 0

• Accept Both
• Accept highest IRR if > WACC

Same as IRR but cash flows invested at WACC instead of IRR

Where NPV = 0

= PV of Future Cash Flows / Initial Cost

# of years prior to full recovery of cost + unrecovered cost / cash flow during full recovery year

cash flows discounted at WACC