1. 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

2. 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.

3. 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