This Q&A podcast focuses on capital budgeting and the weighted average cost of capital (WACC). The speaker begins by reviewing students' calculations of WACC for a case study, addressing their different approaches and the rationale behind the variations in their results. The discussion then shifts to capital budgeting techniques, covering Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period, emphasizing the importance of accurate cash flow estimations. The speaker highlights the significance of using after-tax cash flows and incorporating opportunity costs, such as the potential sale value of existing assets, while excluding sunk costs and interest expenses (already factored into the discount rate). The podcast concludes with advice on approaching a capital budgeting case study, recommending the use of Excel spreadsheets for calculations and sensitivity analysis. For example, the speaker emphasizes that while IRR is often used, NPV is a more reliable measure of project value because it directly reflects the increase in firm wealth.
