Goldman Prep Under Way

I'm working away! I think I'll stop doing finance stuff soon and start doing the "What's happening in the markets, what do I think affects the market, what stocks do I like, what are Goldman's values, what are its major recent deals, and what is its structure and performance record?"

I think I just had a breakthrough, though, as seen in an email I sent to a friend who worked in banking this past summer at Bank of America, met with me a little over a month ago in NYC to talk about it over Japanese desert, and who helped me on the phone earlier for almost an hour. The question/breakthrough is all about calculating NPV (net present value) using a DCF (discounted cash flows) model that incorporates WACC (weighted average cost of capital) and CAPM (capital asset price model) calculations:

Hey I'd call but it's 1am and I know it sucks to be like "hey I know I never call you except to eat Japanese desert and talk about finance, but I have a question" lol.

I just wanted to make sure that I have it right when to use CAPM and when to use WACC.

From what I can tell, when you want to decide whether or not to invest in a security, like a stock, then you would use NPV calculated on a DCF model that has a discount rate calculated by CAPM. If you want to decide whether or not a project is worth it, and we're talking about, like, purchasing a company or something and not just a security, then you'd use NPV calculated on one of the three models we spoke about, and if you elect to use DCF then your discount rate would be calculated using WACC (you couldn't really use WACC for a security because there is not issue about how capital is structured like with a corporation), and in that WACC calculation you could still, if you wanted to, bring back CAPM, but it would only be used to calculate the cost of equity component of the WACC sum?

Basically it looks like using CAPM for the discount rate in a DCF calculation is only a "complete" calculation if it's for a security, but if it's for a firm valuation or something then you need WACC, which can use CAPM or not depending on your preference/available info for how you'll calculate the cost of equity (either as CAPM or as dividends per share divided by share price added to growth in price).

Does that sound right?

Thanks!

VC