Net Present Value and Appropriate Discount Rate

Topics: Net present value, Debt, Interest rate Pages: 2 (252 words) Published: May 22, 2013
1 - Energy Costs
Find information on energy cost: Advantages (government websites)

2 - Cost of Equity, Appropriate Discount Rate (WACC)
Cost of equity 1. Formula Risk Free Rate + (Market Premium x Overall Company Beta)

2. Each part a. Risk free rate (10-year T-bill) i. bond rating chosen * interest rate * b. Market premium c. Beta i. Appropriate Discount Rate (WACC) 1. Formula Weight of Debt x After-Tax Cost of Debt) + (Debt to Equity x Cost of Equity)

2. WACC (important – why is it important for the company, Tesca, to know this?) 3. Each part (optional) a. Weigh of debt b. After-tax cost of debt c. Debt to equity d. Cost of equity

3- Recommended Generator
1. Comparing the two models: a. Warranty Cost Spreadsheet

4 - Cash Flow For Next Twenty Years and Assumptions
Fundamentals factors affecting cost of money: (page 19 of the textbook) 1. 2. 3. 4. Production opportunities Time preferences for consumption Risk Inflation

5 - Capital Budgeting Techniques
Capital budgeting techniques: (page 411 of the textbook) 1. 2. 3. 4. 5. 6. NPV IRR MIRR PI Payback Discount payback

7 - Evaluation of NPV’s Sensitivity Analysis
Based on the sensitivity analysis graph you will need to explain it. (page 436-439)

8 - Recommendations For or Against
Which of the two models should the company choose? If none of them are a good decision for the company, then explain why?

When referring to Exhibit in your paper Example: Please refer to Exhibit 1, which shows………………………. Please refer to Exhibit

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