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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 Summary

WACC, capital budgeting and stock pricing is examined.

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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 ...

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