#cfa-level-1 #corporate-finance #reading-36-cost-of-capital
The WACC or MCC corresponding to the average risk of the company, adjusted appropriately for the risk of a given project, plays a role in capital-budgeting decision making based on the
net present value (NPV) of that project.
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2.3. Applying the Cost of Capital to Capital Budgeting and Security Valuationies may take an ad hoc or a systematic approach to making such adjustments. The discussion of a systematic approach is a somewhat advanced topic that we defer to Section 4.1.
Figure 1. Optimal Investment Decision
<span>The WACC or MCC corresponding to the average risk of the company, adjusted appropriately for the risk of a given project, plays a role in capital-budgeting decision making based on the net present value (NPV) of that project. Recall from the reading on capital budgeting that the NPV is the present value of all the project cash flows. It is useful to think of it as the difference between the present value of Summary
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