This Q&A podcast focuses on the application of different methods for calculating the cost of equity and the weighted average cost of capital (WACC) in capital budgeting decisions. The speaker begins by reviewing students' estimations of the cost of equity using various models (CAPM, bond yield plus risk premium, and DDM), highlighting the impact of low risk-free rates and beta estimations. The discussion then shifts to capital budgeting techniques, covering NPV, IRR, payback period, and profitability index, emphasizing the importance of accurate cash flow estimations. The speaker provides guidance on calculating these metrics and offers practical advice on incorporating factors like opportunity costs, tax shields, and inflation, using a real-world example of a capital expenditure project and a replacement decision to illustrate the concepts. The podcast concludes with a review of the key takeaways and instructions for a student's upcoming take-home case study, which involves a capital budgeting analysis.
