CFE SDM — Corporate Finance & ERM — Strategic Decision MakingSOAWACC =EVrE+DVrD(1−τ)\;=\dfrac{E}{V}r_E+\dfrac{D}{V}r_D(1-\tau)=VErE+VDrD(1−τ) CAPM rE=rf+β (E[rm]−rf)\;r_E=r_f+\beta\,(E[r_m]-r_f)rE=rf+β(E[rm]−rf) Levered beta βL=βU[1+(1−τ)DE]\;\beta_L=\beta_U\left[1+(1-\tau)\dfrac{D}{E}\right]βL=βU[1+(1−τ)ED] RAROC =Risk-adjusted returnEconomic capital\;=\dfrac{\text{Risk-adjusted return}}{\text{Economic capital}}=Economic capitalRisk-adjusted return; EVA =NOPAT−WACC×Capital=\text{NOPAT}-\text{WACC}\times\text{Capital}=NOPAT−WACC×Capital EVPI =Eθ[maxau(a,θ)]−maxaEθ[u(a,θ)]\;=E_\theta\big[\max_a u(a,\theta)\big]-\max_a E_\theta[u(a,\theta)]=Eθ[maxau(a,θ)]−maxaEθ[u(a,θ)]Traps to rememberForgetting to tax-adjust the cost of debt.Recommending growth that breaches the case company's stated risk appetite.Using book value weights in WACC when market values are given.