Page 137 - AFM Integrated Workbook STUDENT S18-J19

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.

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