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Capital budgeting technique

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The market value of the Build a Bear workshop (BBW) equity is calculated by multiplying the total number of common shares outstanding with the current market price of share. The total value of firm is equal to the total market value of equity and the total book value of debts. After assigning the market value weights to both the component (Debt and equity), weighted average cost of capital (WACC) is calculated by multiplying the after tax cost of debt and equity to their market value weights respectively. This weighted average cost of capital is used further in capital budgeting decision. (Table 1, 2 & 3) (Pratt & Grabowski, 2008).

For evaluating the given project, capital budgeting technique Net present value (NPV) & Internal rate of return (IRR) is used. For the calculations, we first calculate the depreciation by dividing the (initial investment -salvage value) by the life of project.

Reference no: EM13922727

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