@vijay
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Up5
@sophie, yeah living in Singapore is cool. If you can take only two weather conditions across year. It’s either hot or it’s raining. 🙂 may be I should start a new thread as u suggest. 🙂
@AjFinance, sure mate. I will be more than glad if I can be of any help to find a job for you here. I did (technically am doing 🙂 ) my MBA from SPJain You have many more options here. Like Insead, SMU etc. Drop a note.Up5Thats interesting. Check this out:
http://www.investopedia.com/ask/answers/09/systemic-systematic-risk.asp
Up5Okay, putting together what both of you said, @Reena and @christine, i think i understand now! 🙂
Looks like you are not convinced @SidMenon. 🙂
After reading your question, almost instantaneously I remembered an image I recently saw on FB. Here it is 🙂
The situation on left image (equality) is what is described in the question. Applying the same WACC across projects without adjusting it for the risk (height in the image). As you can see, as a result of the decision the small risk (height) projects get impacted / ignored. Also the project with high risk (height, again) get elevated exponentially.
I am not going to talk about the image on the left at all. 😀
On a serious note, consider this situation. I am the CFO of a bank. From the financials I can calculate that my bank’s WACC is 12.5%. We have two divisions: Retail Banking & Investment Banking. Retail banking has lower cost of capital (for obvious reasons). Say 10%. It offers lower but safer returns. Investment bank on other hand has higher cost of capital. Hmm, 15%? It also offers higher returns with higher risk.
If I get a project in investment wing with a return of 13% I would accept it as it is higher than the firm’s WACC (where the return must be 15%). At the same time if I get a project on retail wing with 11% return, I would reject it as it is lower than the firm’s WACC.
I will be fired at the end of the year and probably my bank will go bust. 🙂
Many banks in history did this and went bankrupt. Gosh, I should have written a blog on this. 😉
Please feel free to throw rotten tomatoes at me if I have confused you further or if my analogy doesn’t make any sense 🙂
Up4All in one place. This is cool Thanks @vincentt & @christine.
Up4Ohh.. Common misconception then? I am doing my executive MBA in finance (completed all modules and going to do dissertation after June CFA exam). To be honest, it helped me greatly with Quant, FRA & Corp Finance. It took considerably less time for me to complete these subjects for CFA prep. Not that I master those subjects 😀
Up4I dont have a blog and I shamelessly envy people who can put their thoughts on to paper. Well, blog. 😀
Up4How I wish CFAI starts something like this. If you post a comment at specific hour, you will be granted Level 1 certification. Sounds cool. 😀
Up4Sleep mostly. 🙂 When I am awake I work as project manager with a bank in financial compliance.
Up4I am with you @Diya. I can understand completely. I was mentally prepared for December exam and joined this gang. Guess what, everyone of our community convinced me that I can do it in June. And i am trying little harder than i would have, to live upto it. 🙂
Now, i have a split personality. One wants Dec. Other wants to push myself and test my “endurance”. 🙂
People around me started complaining that I started getting irrational and getting irritated for no reason.
Am I? I dont know. Please leave me alone. Its 3 AM in Singapore and I have my exam in EXACTLY 30 days.
Give me a hug.
God speed… 🙂
Up3Don’t know why and how. It’s been a habit from childhood. Music never distracts me while studying. It’s like my study partner. 🙂
