The Corona Virus caused this class to be moved out of the classroom and this is the online live class, recorded as I taught it using Zoom. During the session, we talked first about the weights on debt and equity in a cost of capital calculation, arguing that market value weights trump book value weights every single time. For the market value of debt, we argued for including both interest bearing debt converted to market value and the present value of lease commitments. Once we had the cost of capital nailed down, we moved on to returns, and started with an argument for cash flows as opposed to earnings and why those cash flows should be time weighted. We started on project analysis, defining project broadly to include everything from a large acquisition to replacing the water fountain in your office building, and set up four projects to assess. In this session, we started with the Rio Disney project and how accounting earnings and book value can be estimated, and used to derive a return on capital, and argued that the right discount rate for this project should be the cost of capital (because it is being compared to return on capital0 for Disney Theme parks, adjusted for Brazil country risk. Slides:
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