Niki Co.

What is WACC and why it is definitive to estimate a firms salute of large(p) ? a.It is a way to measure the bell of capital , like DCF formula. If the firm is contemplating investment in a find that has the same risk as the firms existing business , the opportunity address of capital for this project is the same as the firms cost of capital. The phoner cost of capital is not the cost of debt , and not the cost of equity but an come. The blend is called the weighted- medium. b.The true cost of capital depends on a project risk not on the company undertaking the project. Two reasons for being so important: I.Many projects can be treated as average risk, that is , no more or less risky than the average of the compants other assets. For these projects the company cost of capital is the refine give the sack range. II.The company cost of capital is a recyclable starting point for setting discount set outs for outstandingly risky or safe projects. It is easier too add to , or subtract from, the company cost of capital than to estimate from each one projects cost of capital from scrape. Business people have safe intuition about relative risks , at least in industries they are used to , but not about absolute risk or required rates of return.

Therefore, they set a company wide cost of capital as a bench mark. Do you aggress with Jonna Cohens WACC calculation ? wherefore or why not? We dont agree. individually project should be evaluated as its own opportunity cost of capital. For a Nike Inc. composed of a,b,c,d,e,the firm value is PV(a,b,c,d,e)=PV(a)+PV(b)+PV(c)+PV(d)+PV(e) = sum of separte asset values. Investors would value by discounting its forecasted cash flows at a rate reflecting the risk of a . They would value b by discount at a rate reflecting the risk of b. The discount rate rates will be different. Also, the discount using by Jonna Cohen is wrong. We wont be able to get the estimable WACC. If you want to get a full essay, order it on our website: Orderessay

If you want to get a full essay, wisit our page: write my essay .