wacc - capm, page-4

what gets me about the wacc is the fact that the higher it goes the cheaper the stock
eg

eps = $1
wacc1= 10%
wacc = 20%

intrinsic value1 = $1/.10 =$10
intrinsic value = $1/.20 = $5

its all to do with the risk premium

risk free rate = 3.75%

equity premium = 7%

wacc = 3.75+7= 10.75%

what sort of premium would you expect from investing stocks

I would have to say at least 7%
some people use beta x risk free rate but I reckon that is rubbish

no wonder fund managers are no better at stock picking than dart throwing chimp