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Usage of WACC

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Suppose a firm estimates its WACC to be 10 percent. Should the WACC be used to evaluate all of its potential projects, even if they vary in risk? If not, what might be "reasonable" costs of capital for average-, high-, and low-risk projects?

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WACC will ...

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We use WACC as discount rate to find the present value of future cash flows emerging from a project, so it is of immense importance to calculate the correct WACC. And you are also aware that if the WACC is incorrect it may lead to serious consequences.Could you expand on this?2-If a firm decides it will only fund projects with a specific high rate of return what might happen to the risks and cost of funds for the firm over time?3-Why would a company focus on short term cash inflows and use the payback method as a capital project decision-making tool? 4- Why would the payback method still be used frequently in companies? Are there times when the payback method can be used effectively and for what types of projects?5-If we consider how sunk costs relate to making business decisions, how do sunk costs figure into incremental analysis? 6-Can anyone think of examples of how we make use of sensitivity analysis in our job functions and decision-making? 7-In thinking of how our organizations approach new project decision-making, what process is used? What types of tools are used to evaluate projects and are there guidelines used for expected returns? 8- Using a SWOT analysis is a good part of the strategic planning process. Once a list of potential projects are selected is there a means of forecasting financial results through the use of payback, IRR, MIRR, or NPV?

-We use WACC as discount rate to find the present value of future cash flows emerging from a project, so it is of immense importance to calculate the correct WACC.

And you are also aware that if the WACC is incorrect it may lead to serious consequences.

Could you expand on this?

2-If a firm decides it will only fund projects with a specific high rate of return what might happen to the risks and cost of funds for the firm over time?

3-Why would a company focus on short term cash inflows and use the payback method as a capital project decision-making tool?

4- Why would the payback method still be used frequently in companies? Are there times when the payback method can be used effectively and for what types of projects?

5-If we consider how sunk costs relate to making business decisions, how do sunk costs figure into incremental analysis?

6-Can anyone think of examples of how we make use of sensitivity analysis in our job functions and decision-making?

7-In thinking of how our organizations approach new project decision-making, what process is used? What types of tools are used to evaluate projects and are there guidelines used for expected returns?

8- Using a SWOT analysis is a good part of the strategic planning process. Once a list of potential projects are selected is there a means of forecasting financial results through the use of payback, IRR, MIRR, or NPV?

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