DB8: The intrinsic value of a company is the present value of its expected future free cash flows (FCF) discounted at the weighted average cost of capital (WACC)

How does one measure a firm’s risk and the rate of return expected by shareholders?

Expected return is the amount of profit or loss an investor can anticipate recieving on an investment, which is claculated by multiplying potential outcomes by the odds of the occurring and then totaling these results. Wacc is calulated by multiplying the cost of each capital source by its relevant weight, and then adding the products together to determine the value

What & how is the WACC affected?

Weighted average cost of capital all sources of capital, including common stock, preferred stock, bonds, and any other long term debt are included in the WACC caluclation. some of the the factors that companies cannot control are interest rates and tax prices. If the SEC increases interest rates, the cost of debt increases, this leads to firms paying more for any debt accumulated. If prices decline, the valuation increases.

All else held equal, could the higher risk increase the WACC?

a high weighted average cost of capital is typically a signal of the higher risk assosicated with a firms operations. A firms WACC increases as the beta and rate of return on equity increases because an increase in WACC denotes a increased in valuation and an increase in risk

Would this which reduce or increase the firm’s value?

If a company has a higher WACC, it suggests the company is paying more to service their debt or the capital they are raising. As a result, the company's valuation may decrease and the overall return to investors may be lower.