Our company has recently taken interest in starting a new project, however, we believe this may be riskier than our typical operations. As a result of this, we believe using our regular Weighted Average Cost of Capital (WACC) would be unwise, as we could accidentally take on a project that is too risky. We hope to establish another discount rate that is specific to this project to hope us decide if it is worth investing in.

Tasks may include:

• Researching companies and their Weighted Average Cost of Capital using the pure play approach to find a peer group.
• Calculating each company’s respective beta in the peer group, and using the average to calculate the return for that level of risk using CAPM.
• Establishing a second WACC using the subjective approach.
• Creating a report with all calculations and research conducted, including comparisons between each method used and recommendations for which rate to use.

By the end of the project, students should complete the following list of activities (this is basically a retelling of the steps above):

• Researched companies and their costs of capital using the pure play approach.
• Finding the rate of return for the peer group using CAPM.
• Establishing a second discount rate using the subjective approach.
• Complete a report of all findings, including recommendations for which new discount rate is most appropriate.

Bonus steps would include:

• Including graphs, charts, and additional visuals to illustrate why the recommended rate is more beneficial.

Final deliverables should include

• A completed report of research findings, visuals, and recommendations.
• A 20-minute presentation outlining all research, calculations, and recommendations.

Students will connect directly with us for mentorship throughout the project through weekly meetings to discuss progress, ask questions, and resolve any concerns the student may have. We will be able to provide answers to questions such as:

• What is the project we are investing in?
• Why do we feel that this project is more risky than our typical operations?
• Input on choices, problems or anything else the students might encounter.

In order to complete this project, students can self-teach, but it is beneficial to be familiar with:

• Cost of capital including but not limited to topics such as WACC, financial risk, beta calculations, SML, CAPM, the pure play approach, and the subjective approach.
• Excel skills including calculations and creating graphs/charts.
• Research and critical thinking skills.

Nice to haves for students include

• Experience with investing.
• Knowledge of or experience within our company’s industry.

Again, students can complete this project without any of the prior knowledge listed here. Students will be expected to research and learn more about this above as the project goes along.

We can provide students with:

• Financial information about our company including past statements.
• Information on past projects including calculation for discount rates used, riskiness, and each project’s activities.