QRA

QRA - Quantified Risk Appetite

QRA of most corporations is 10-25% of Market Cap - important to note that QRA is a parameter in calculating risk adjusted value - not the most amount of money a company is willing to risk.  spreadsheet: http://www.sdg.com/ebriefings/on-demand/risk-tool
(Source: https://www.youtube.com/watch?v=orAyEtsfb3k&feature=youtu.be)

QRA is 10% of of market cap and small risks are 10% of QRA - e.g. 1% of market cap.  In this case, any decision that is less than that, then Expected Value is a very close equivalent to risk adjusted value.

All divisions of a company should use the same QRA to prevent value destroying opportunities - big bet decisions.  This pooling of risk gives large corporations an advantage over smaller corporations - giving up this advantage allows smaller companies to have an advantage if they are using appropriate risk.

WACC Definition

A calculation of a firm's cost of capital in which each category of capital is proportionately weighted. All capital sources - common stock, preferred stock, bonds and any other long-term debt - are included in a WACC calculation. All else equal, the WACC of a firm increases as the beta and rate of return on equity increases, as an increase in WACC notes a decrease in valuation and a higher risk.

The WACC equation is the cost of each capital component multiplied by its proportional weight and then summing:




Where:
Re = cost of equity
Rd = cost of debt
E = market value of the firm's equity
D = market value of the firm's debt
V = E + D
E/V = percentage of financing that is equity
D/V = percentage of financing that is debt
Tc = corporate tax rate

Businesses often discount cash flows at WACC to determine the Net Present Value (NPV) of a project, using the formula:

NPV = Present Value (PV) of the Cash Flows discounted at WACC.

(source: http://www.investopedia.com/terms/w/wacc.asp)

Definition of 'Cost Of Equity'

In financial theory, the return that stockholders require for a company. The traditional formula for cost of equity (COE) is the dividend capitalization model:



A firm's cost of equity represents the compensation that the market demands in exchange for owning the asset and bearing the risk of ownership.

Investopedia explains 'Cost Of Equity'

Let's look at a very simple example: let's say you require a rate of return of 10% on an investment in TSJ Sports. The stock is currently trading at $10 and will pay a dividend of $0.30. Through a combination of dividends and share appreciation you require a $1.00 return on your $10.00 investment. Therefore the stock will have to appreciate by $0.70, which, combined with the $0.30 from dividends, gives you your 10% cost of equity.

The capital asset pricing model (CAPM) is another method used to determine cost of equity.