Capital Budgeting 101
In Capital budgeting, why don't we simply include dividends and interest in cashflows and discount by Rf+inflation?
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Well, for one, the RF rate already includes inflation... There's more..
How would you allocate dividends and interest to cash flows of, say, 7 different projects to be evaluated today? And then three months later you have to assess another set of projects. Cleanest way is to focus on each project's organic cash flows, and use WACC to discount.
Capital Budgeting explanation (Originally Posted: 05/06/2013)
Im sorry to post a question asking for homework help, but I am left with no other choice. I need to find the WACC of a timeline where you are given NPV, IRR, and Every cash flow except the initial investment.
The question looks like this: IRR=11.99%, NPV=$3970.67, CF0=?, CF1=$12500, CF2=$12600, CF3=$15450, CF4=$19100, CF5=$26700.What is WACC?
I already Know the answer, I just have no idea how to solve it.
IRR is the rate that results in the NPV equaling 0. Using this, all you have is one variable, the initial cash flow. Solve the function using 11.99% that discounts the cash flows to 0. Once you have the initial cash flow, then solve for the rate that makes these cash flows discount to the NPV, $3,970.67.
Yep
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