Weighted average cost of capital , Financial Management

I need report on Weighted Average Cost of Capital. Do you provide help in topic Weighted Average Cost of Capital? I need expert's assistance to solve my college assignment. Please suggest if it works for me.

Posted Date: 2/14/2013 12:36:38 AM | Location : United States





Definition of ''Weighted Average Cost of Capital - WACC''

A calculation of a firm''s cost of capital where each category of capital is proportionately weighted. All capital sources - common stock, preferred stock, bonds and another long-term debt - are involved in a WACC calculation. All else equal, the ''Weighted Average Cost Of Capital'' that is abbreviated as 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:

WACC = (E/V * Re) + (D/V * Rd) * (1-Tc)


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

Businesses frequently 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.

Posted by isbell | Posted Date: 2/14/2013 12:40:11 AM


Related Discussions:- Weighted average cost of capital , Assignment Help, Ask Question on Weighted average cost of capital , Get Answer, Expert's Help, Weighted average cost of capital Discussions

Write discussion on Weighted average cost of capital
Your posts are moderated
Related Questions
ARROW as an FSA's risk based approach to regulation ARROW stands for Advanced, Risk-Responsive Operating Framework. In January 2000, FSA set out a proposed approach to regulati

Describe the value maximisation criterion In applying the value maximisation criterion, term value is used in terms of worth to the owners, which is, ordinary shareholders. Cap

What are the Market conditions of cost of capital Security may not be readily marketable when investor wants to sell; or even if a continuous demand for security does exist, p

functions of stock market in usa

What are the importance of leverage on a small scale firm?

ACT presently is all-equity financed. This reflects the stance of the former CEO, a dominant personality who stated repeatedly: "I don't want us to be in thrall to the demands of t

It is, usually, not possible to totally eliminate both translation exposure and transaction exposure.  In few cases, the elimination of one exposure will as well eliminate the othe

Q. Importance of Capital Budgeting Decision? 1. Such Decision affect the profitability of the Firm: - Capital Budgeting decision influences the long-term profitability of a fir

A firm's operating and financing decisions   Risk also results from decisions made within the company.  This risk is usually divided into two classes:  - Business risk is th

What are the main elements of capital budgeting decisions There are three elements of capital budgeting decisions (i) long-term assets and their composition (ii) business