Week 7A (videos) Flashcards

1
Q

What are 3 issues in the WACC computation?

A
  1. should be based on market value of equity and debt –> book value of debt is good proxy
  2. is Debt-to-Equity ratio representative of the future?
  3. firms may explicitly target mix of debt and equity
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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.

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3
Q

How to calculate the unlevered beta?

A

B_unlevered = B_levered / (1 + ((1-t)*(D/E))

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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))

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