Question: Critically evaluate the main approaches that companies should consider when determining their cost of equity and debt capital, and the weighted average cost of

Critically evaluate the main approaches that companies should consider when determining their

Critically evaluate the main approaches that companies should consider when determining their cost of equity and debt capital, and the weighted average cost of capital. Your discussion should also make reference to the choice of company, industry and project beta in determining the market risk of the project. (20 marks) Question You observe that 10 years ago a company stock was trading with a forward PE ratio of 80. Today that same stock trades at a PE of 5. Explain the determinants of a firm's PE ratio in practice and whether the decline in PE ratio described above reflects poor performance by the company. (20 marks)

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Determining the cost of equity and debt capital as well as the weighted average cost of capital WACC is crucial for companies when evaluating investment projects and making financing decisions There a... View full answer

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