Corporate Finance - Marginal Cost of Capital

Running Head: CORPORATE FINANCE
Corporate Finance
Name of the University
Name of the Student
Author Name

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Table of Contents
1. Introduction..................................................................................................................................2
2. Discussion....................................................................................................................................2
2.1. Project Evaluation.................................................................................................................2
2.2. Different types of methodology used for project evaluation................................................2
2.2. a NPV or Net Present Net Value..........................................................................................3
2.2.b IRR or Internal Rate of Return...........................................................................................5
2.3. Marginal Cost of Capital:.....................................................................................................6
2.4. MCC Curve and break-even.................................................................................................8
2.5. Impact on dividend policy on capital investment.................................................................9
3. Conclusion.................................................................................................................................12
References......................................................................................................................................14
Appendice......................................................................................................................................17

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1. Introduction
This paper evaluates and discusses the three projects A1, A2 and B,which based on “the
marginal cost of capital” or “weighted average marginal cost of capital”. Evaluation and
analyzing these three projects will result in accepting which project and which project to reject.
This report discusses the types or techniques of the marginal cost of capital and its application
while evaluating the solution.There are various techniques and methodology for selecting the
desired projects. The discussion part includes evaluation and analysis of a project, computation
of Weighted Average cost of capital, and analysis of MCC curve. The recommendation will be
based on quantitative analysis.
2. Discussion
2.1. Project Evaluation
The evaluation of the project deals with a systematic assessment of the given project,
policy, investment and program along with planning, application, and monitoring the effects.
Project evaluation provides information which helps to make the decision process (Ilo.org,
2020).Its objective is to correctly distinguish the level of achievement of the project, its
efficiency, effects, and maintaining the level.
Project analysis is used to evaluate the investment and determine the value of asset or
business. However, valuation analysis is the responsibility of an investor, as cash flow valuation
is an essential part in a long term basis (Razzaq, 2018).
2.2. Different types of methodology used for project evaluation
The methodsused for project evaluation on proposed projects are (Master, 2017).

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 NPV or “Net Present Value”
 IRR or “Internal rate of return”
 Profitability index
 Payback method
These methods used in the proposed project to bring success and development. It shows
clarity of projects in terms of available funds and economy and a project with available debt and
shareholders' fund will reflect a good project.
The Discounted Cash flow method is used to calculate the investment value based on
future cash flow; it calculates the net present value of a project. It discounts or reduces future
value into the present value at a discounted rate (Lilford, Maybee,&Packey, 2018). This
technique used in the two methods are
 NPV method
 IRR methods
These two methods are conflicting in the mutually exclusive project and the independent
project, which is discussed below.
2.2. aNPV or Net Present Net Value
It is mainly a difference between “the present value of cash inflow” and “the present
value of cash outflow” over a period of time. It is also be termed as a discounted cash flow
method, which an essential technique in the capital is budgeting. The application of net present
value helps to accept or reject the proposal on the basis of investment or cash flow. A projected
net present value is calculated by adding the net cash flow, discounted factor of cost of capital