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Risk adjusted WACC and adjusted present value

3.2 Calculating a risk-adjusted WACC

1 Find the equity beta from a suitable quoted company (i.e. in the same

industry as the project).

2 Adjust this equity beta to convert it to an asset beta – degear it.

3 Readjust the asset beta to reflect the project (i.e. its own) gearing levels
– regear the beta.

4 Use this beta in the CAPM equation to find k e.

5 Use this k e to find the WACC.

6 Evaluate the project.

Illustrations and further practice

Now try TYU 1 in Chapter 7

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