Question
Suppose you are the Chief Financial Officer of a tech company and that you want to obtain a good estimate for the cost of capital
Suppose you are the Chief Financial Officer of a tech company and that you want to obtain a good estimate for the cost of capital of a new investment project. Your project is an investment in a new production line for semi-conductors and has an expected lifetime of 20 years. That is, you expect to receive cash flows from the project for 20 years. Explain how you would obtain a good cost of capital estimate for your project using two different methods (Benchmarking & CAPM). You should illustrate how you would calculate the cost of capital using a fictitious example in which you may use information from the textbook and course slides. Make sure you justify any numbers you use in your example and discuss any advantages and disadvantages of using one method versus the other.
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