For the analyst, the second key use of the marginal cost of capital is in security valuation using any one of several discounted cash flow valuation models available
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2.3. Applying the Cost of Capital to Capital Budgeting and Security Valuation e realistic or appropriate assumptions and are potential drawbacks to using the company’s WACC in valuing projects. However, alternative approaches are subject to drawbacks as well, and the approach outlined has wide acceptance.4
<span>For the analyst, the second key use of the marginal cost of capital is in security valuation using any one of several discounted cash flow valuation models available.5 For a particular valuation model, if these cash flows are cash flows to the company’s suppliers of capital (that is, free cash flow to the firm), the analyst uses the weighted average
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