Capital Budgeting.ppt

CapitalBudgeting&RiskInvestinhighestNPVprojectNeedDiscountratetogetNPVUseCAPMtogetdiscountrateCapitalBudgeting&RiskInvestinhighestNPVprojectNeedDiscountratetogetNPVUseCAPMtogetdiscountrateModifyCAPM(accountforproperrisk)CapitalBudgeting&RiskModifyCAPM(accountforproperrisk)UseCOCuniquetoproject,panyCostofCapitalpanyCostofCapital(COC)isbasedontheaveragebetaoftheassetsTheaverageBetaoftheassetsisbasedonthe%panyCostofCapitalpanyCostofCapital(COC)isbasedontheaveragebetaoftheassetsTheaverageBetaoftheassetsisbasedonthe%offundsineachassetExample1/3NewVenturesB====-themixofdebt&panyExpandCAPMtoincludeCSR=rf+B(rm-rf)esRequity=rf+B(rm-rf)CapitalStructureCapitalStructureCOC=rportfolio=rassetsCapitalStructureCOC=rportfolio=rassetsrassets==rdebt(D)+requity(E)(V)(V)COC=rportfolio=rassetsrassets==rdebt(D)+requity(E)(V)(V)Bassets=Bdebt(D)+Bequity(E)(V)(V)CapitalStructureCOC=rportfolio=rassetsrassets==rdebt(D)+requity(E)(V)(V)Bassets=Bdebt(D)+Bequity(E)(V)(V)CapitalStructurerequity=rf+Bequity(rm-rf)