The Cost of Capital - Using the WACC to Value a Project

3 important questions on The Cost of Capital - Using the WACC to Value a Project

What is the levered value of a project?

The value including the benefit of the interest tax deduction

What activity is referred to as the WACC-method?

Discounting future incremental free cash flows using the firm's WACC

What three steps does one follow when applying the WACC-method?

1 Determine the incremental free cash flow of the investment
2 Compute the weighted average cost of capital
3 Compute the value of the investment, including tax benefit of leverage by using the WACC

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