Answering Finance Questions

Question 1

Weighted Average Cost of Capital (WACC) measures companies' capital costs by considering debt and equity in their capital structure. Formula: WACC = (E/V) * Re + D/V * Rd * (1- Tc). Where E represents equity, V represents total firm value, Re is the cost of equity capital, D = debt with its associated Rd cost of debt costs, and Tc is its tax rate.

Question 2

Capital Asset Pricing Model (CAPM) involves four steps. First, estimate the risk-free rate, then the stock beta; finally, estimate the expected market return using the CAPM formula: Expected Return = Risk-free Rate + Beta *(Expected Market Return - Risk-free Rate).

Question 3

Internal Rate of Return (IRR) is the discount rate that makes a project's Net Present Value (NPV) equal to zero; this represents its expected rate of return and represents its dollar value when its NPV reaches 0.