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Unformatted text preview: The following publicly available securities data is today’s “snapshot” of the market. Use this information to estimate a weighted average cost of capital (WACC) for your firm. Then add a "spread" or "risk adjustment" to the WACC to get the company's risk adjusted cost of capital (RACC). The RACC is the discount rate that you will disseminate to your analysts. This is the hurdle rate for projects of normal risk to the company. Since prices are volatile, calculate a range of RACCs. Then use your professional judgment to assign a RACC to your analysts. Bond prices may move up or down 5%, stock prices 15%, preferred stock prices 3%, betas 20%, growth rates +/- 1%, market premium +/- 1%. Write a one page memo to your analysts in which you justify your RACC. Attach your spreadsheet and formulas (press ctrl ~) to the memo....
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This note was uploaded on 02/09/2012 for the course MGT 3078 taught by Professor Marchman during the Spring '12 term at Georgia Institute of Technology.
- Spring '12