Finance Session 1 WACC and Cost of Equity Calculation.pptx

It is a finance ppt where WACC and Cost of equity is calculated.

1. Finance – Intro & Basics - Mayank Bhartia

2. Net Present Value (NPV) NPV is given by the present value of all future cash flows minus the initial investment Where FCF = Unlevered or free cash flows or EBIT - EBIT× Tax rate + D – Capex - ∆NWC r = Weighted Average Cost of Capital I = Initial investment n = Useful life of project

3. Weighted Average Cost of Capital (WACC) = θ(1-T)r d + (1- θ)r e Where θ = Debt as a fraction of investment T = Tax rate r d = Cost of debt r e = Cost of equity

4. Cost of equity, r e Obtained by using the Capital Asset Pricing Model (CAPM): r e = r f + β(r m - r f ) Where r f = Risk-free rate of return r m = Return on market portfolio β = Riskiness of asset r m -r f is called the market risk premium