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    WACC, Capital Budgeting, and Stock Pricing

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    1.) Explain how a change in interest rates in the economy would be expected to affect each component of the weighted average cost of capital?
    2.) If you were analyzing a replacement project and suddenly learned that the old equipment could be sold for $1,000 rather than $400, would this new information make the replacement look better or worse? Explain.

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    Solution Preview

    Question 1
    A change in interest rates in the economy would affect the following components of the weighted average cost of capital:
    1. Cost of debt - this is directly related to the changes in interest rates which means the higher the rate ...

    Solution Summary

    WACC, capital budgeting and stock pricing is examined.

    $2.49

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