Slide MGT204 Slide17

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McGraw-Hill Ryerson © 2003 McGraw–Hill Ryerson Limited

Corporate Finance

Ross  Westerfield  Jaffe _{Sixth Edition}

17

Chapter Seventeen

Capital Budgeting for the

Levered Firm

Prepared by Gady Jacoby

University of Manitoba and

Sebouh Aintablian

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McGraw-Hill Ryerson © 2003 McGraw–Hill Ryerson Limited

Prospectus

• _{Recall that there are three questions in corporate}

finance.

• _{The first regards what long-term investments the}

firm should make (the capital budgeting question).

• _{The second regards the use of debt (the capital}

structure question).

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McGraw-Hill Ryerson © 2003 McGraw–Hill Ryerson Limited

Chapter Outline

17.1 Adjusted Present Value Approach 17.2 Flows to Equity Approach

17.3 Weighted Average Cost of Capital Method

17.4 A Comparison of the APV, FTE, and WACC Approaches

17.5 Capital Budgeting for Projects that are Not Scale-Enhancing

17.6 APV Example

17.7 Beta and Leverage