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    Risk adjusted discount rate

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    A firm has a WACC of 10%, and it wishes to undertake a project that is far more risky than projects previously accepted under the normal course of its business. How should the company evaluate this project? Why?

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    The WACC is simply the cost of the several types of capital (called capital components) used by a firm, weighted by their proportions in the firm's capital structure. In order to calculate the WACC, the analyst has to estimate
    the cost of debt
    the cost of preferred ...

    Solution Summary

    This explains the meaning of Risk adjusted discount rate