17-0 McGraw-Hill Ryerson © 2003 McGraw–Hill Ryerson Limited Corporate Finance Ross  Westerfield  Jaffe Sixth Edition 17 Chapter Seventeen Capital Budgeting.

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17-0 McGraw-Hill Ryerson © 2003 McGraw–Hill Ryerson Limited Corporate Finance Ross  Westerfield  Jaffe Sixth Edition 17 Chapter Seventeen Capital Budgeting for the Levered Firm Prepared by Gady Jacoby University of Manitoba and Sebouh Aintablian American University of Beirut

17-1 McGraw-Hill Ryerson © 2003 McGraw–Hill Ryerson Limited Prospectus Recall that there are three questions in corporate finance. The first regards what long-term investments the firm should make (the capital budgeting question). The second regards the use of debt (the capital structure question). This chapter is the nexus of these questions.

17-2 McGraw-Hill Ryerson © 2003 McGraw–Hill Ryerson Limited Chapter Outline 17.1 Adjusted Present Value Approach 17.2 Flows to Equity Approach 17.3 Weighted Average Cost of Capital Method 17.4 A Comparison of the APV, FTE, and WACC Approaches 17.5 Capital Budgeting for Projects that are Not Scale- Enhancing 17.6 APV Example 17.7 Beta and Leverage 17.8 Summary and Conclusions