BUS 312 Lecture Notes - Lecture 12: Market Portfolio, Capital Asset Pricing Model, Weighted Arithmetic Mean

• School: Simon Fraser University
• Department: Business Administration
• Course: BUS 312
• Professor: Martin Thorsten

Document Summary

To compute the discount rate for the average-risk projects, you can directly use the capm (note: you could also use apt): company cost of capital 100% equity-financed firm a e requity = r. D + e r equity wacc = r assets = d v r debt + e v r equity. Company cost of capital: a company"s cost of capital can be compared to the capm required return required return. Project beta 1. 13 (microsoft) company cost of capital 12. 9 5. 0 0 sml. D v r debt + e v r equity r assets = r f + b assets (r m - r f ) Need: proportion of debt cost of debt cost of equity. Cost of equity the risk-free rate: figure out the risk-free rate: try to match the investment horizon with the maturity of the government security whose yield is used as the risk-free rate.