Page 136 - AFM Integrated Workbook STUDENT S18-J19

Chapter 7

Using a risk adjusted WACC

3.1 When is a risk adjusted WACC relevant?

 A project-specific, risk-adjusted WACC should be used as a discount rate if:

– The project has a different level of business risk from the company – so
the company k e needs to be replaced with a project k e.

– The project is financed to keep the company gearing constant – so the
company k d and gearing ratio are constant.

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