The Discount Rate for the Asset Investment Decision (WACC), James Tompkins
Published at : 17 Dec 2020
This is the sixth and final lecture in the "Corporate Finance" series in which I discuss the discount rate for the asset investment decision. An example of an asset investment decision is when Boeing decided to invest in the development and production of a commercial aircraft known as the Dreamliner. Part of their decision-making process would have included conducting a net present value analysis (see lecture 3 of this series). Such an analysis would require both an estimation of the relevant Dreamliner's expected cash flows and their inherent risk. This risk is reflected by the discount rate for the asset investment decision and can be represented by a firm's weighted average cost of capital. As always, my goal is not to have you memorize formulas or concepts, but rather for you to understand their derivation and assumptions so you have a reasonable chance of using sound judgment when applying these principles in practice.
weighted average cost of capitalWACCCorporate Finance (Field Of Study)