I appreciate constructive feedback, hence a healthy discussion (unlike others' unecessary input).
From my career experience, this is how we value NPVs in Corporate Finance. We take a discount rate representative upon the cost of capital that will be employed to undertake a specific project or CAPEX.
My calc incorporates exactly that! I believe the Beta and debt/equity ratio has relevance to the project, because it's the existing capital structure, the risk and components of it, that will be the very source of funding used to execute the project.
The shares, being the source of capital utilised to undertake this CAPEX, is the very reason why the cost of equity must be used in the NPV calc BECAUSE it is this equity capital that will be employed to udnertake the project (including any future capital raised). So, a cost has to be applied to it (required rate of return).
What other capital other than the existing source will be used for the CAPEX? If FMS can source cheapter capital through debt, then fine a lower discount rate can be employed.
However, we can only go by the information at hand. Equity capital will be utilised, equity capital is distrubted in the form of shares as a claim to that capital, and it has a cost when employed by a company to utilise it for invesmtent projects. So, that's exaclty how we arrive at a 'Cost of Equity' from the above model.
FMS Price at posting:
20.5¢ Sentiment: Hold Disclosure: Held
