Question: This week your team will need the weighted average cost of capital to use for each project. For projects in the existing line of business,
This week your team will need the weighted average cost of capital to use for each project. For projects in the existing line of business, the appropriate cost of capital is the firm's cost of capital (or in Chipotles case an 8% cost of capital is warranted). For projects outside the normal course of business, the cost of capital must be adjusted up or down from the corporate rate to compensate for the increased risk or the decreased risk brought to the corporation by the acceptance of this project. Specifically, please do the following: Identify yourself and your team members at the top of the first page. The first paragraph describes how the project will bring risk to the company or decrease the risk of the company. If the project is within the existing risk profile of the company -- you do not need to do the next step. If the project is outside the normal operations of the firm, such as entering a new line of business, then look up the betas for firms in that business and average the betas for these firms, recalculate the cost of equity for this project, find the average debt to asset level in this new industry, recalculate the weighted average cost of capital for the project (please show your work in how you calculated this project's weighted average cost of capital. Repeat this step for the second project.
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