Do you want BuboFlash to help you learning these things? Or do you want to add or correct something? Click here to log in or create user.



Tags
#cfa-level-1 #corporate-finance #reading-36-cost-of-capital
Question

If we choose to use the company’s WACC in the calculation of the NPV of a project, we are assuming that the project:

  • has the [...] of the company.

Answer
same risk as the average-risk project

Tags
#cfa-level-1 #corporate-finance #reading-36-cost-of-capital
Question

If we choose to use the company’s WACC in the calculation of the NPV of a project, we are assuming that the project:

  • has the [...] of the company.

Answer
?

Tags
#cfa-level-1 #corporate-finance #reading-36-cost-of-capital
Question

If we choose to use the company’s WACC in the calculation of the NPV of a project, we are assuming that the project:

  • has the [...] of the company.

Answer
same risk as the average-risk project
If you want to change selection, open original toplevel document below and click on "Move attachment"

Parent (intermediate) annotation

Open it
If we choose to use the company’s WACC in the calculation of the NPV of a project, we are assuming that the project: has the same risk as the average-risk project of the company, and will have a constant target capital structure throughout its useful life.3

Original toplevel document

2.3. Applying the Cost of Capital to Capital Budgeting and Security Valuation
e of the cash outflows, discounted using that same opportunity cost of capital: NPV = Present value of inflows − Present value of outflows If an investment’s NPV is positive, the company should undertake the project. <span>If we choose to use the company’s WACC in the calculation of the NPV of a project, we are assuming that the project: has the same risk as the average-risk project of the company, and will have a constant target capital structure throughout its useful life.3 These may not be realistic or appropriate assumptions and are potential drawbacks to using the company’s WACC in valuing projects. However, alternative approaches a

Summary

statusnot learnedmeasured difficulty37% [default]last interval [days]               
repetition number in this series0memorised on               scheduled repetition               
scheduled repetition interval               last repetition or drill

Details

No repetitions


Discussion

Do you want to join discussion? Click here to log in or create user.