Week 7A (videos) Flashcards
1
Q
What are 3 issues in the WACC computation?
A
- should be based on market value of equity and debt –> book value of debt is good proxy
- is Debt-to-Equity ratio representative of the future?
- firms may explicitly target mix of debt and equity
2
Q
What WACC should you use for a specific project?
A
Not WACC of the firm, but WACC specific to the project. Risk of project =not the same as risk of the firm.
3
Q
How to calculate the unlevered beta?
A
B_unlevered = B_levered / (1 + ((1-t)*(D/E))
4
Q
How to use the calculated unlevered beta, to calculate the new levered beta?
A
B_levered = B_unlevered * (1+((1-t)*(D/E))