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### 7 Cards in this Set

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 Note:Marginal Cost of Capital Assumption: -The balance sheet capital breakdown is the firm optimal capital structure.-Fix long run condition to short run Assumptions of the MCC: 1.We will take the projects in order based on the IRR.2.If the project has IRR>WACC, managers will invest in the project.3.HH will know about it and invest4.We made the assumption that risks of projects are the same.4.The projects have the same risk= average risk of the firm *MCC=WACC (rd, rpfd, rs) Note:Example of 2 projects: -Reparing piece of machinery that warned out-Opening a steel plant in Venezuela-These project's risk is not the same We need some way to risk adjust projects:2 methods: 1.Project Market Line2.Risk buckets Project Market Line: Takes risk adjustment of projects into consideration -->We will accept projects when IRR>WACC Hurdle Rate Method: The Method compares the MCC to the Investment Opportunity Schedule to determine which projects to accept or reject. -You accept any project where the IRR>WACC Second method: Risk buckets: -We put individual projects into risk buckets-The team will then assign the required return for each risk bucket.