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What do you mean by horizon value in finding the NPV of a stock?
horizon value = FCF(1+g)/WACC - g where FCF = Free cash flows at current time period or sub zero g= growth rate of firm WACC=weighted average cost of capital ----
What is the advantage of WACC?
All else equal, the weighted average cost of capital (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.
What is after tax wacc?
WACC stands for weighted average cost of capital. So after tax means cost of capital after taxes are taken into account.
What are the components of WACC?
The usual computation of Weighted Average Cost of Capital are the cost of debt and cost of equity. Importantly, the values used are always the market values of debt and equity for a firm, NOT the book value. Typically the debt will be 'tax adjusted' which means adjusting for the fact that interest payments on debt are an expense and hence are tax deductible. The equation for WACC: WACC = E/V(ke) + D/V(kd)(1-t) Where: E is the market value of equity D is the market value of debt V is D+E ke is the cost of equity capital kd is the cost of debt capital t is the corporate tax rate
What does wacc measure?
WACC is a component used in finance to measure the company's cost of capital, usually as a discounting factor and the companies use debt or equity for financing.
How do you calculate WACC?
how to calculate WACC how to calculate WACC how to calculate WACC how to calculate WACC
What is the formula for calculating wacc?
The Weighted Average Cost of Capital (WACC) reflects the average 'cost of financing' for a firm. Firms raise money in several ways, such as issuing equity, debt, and preferred stock. The WACC is calculated by taking the (after-tax) 'cost' of each of these forms of financing and multiplying it by the relative proportion of total financing represented by that form of financing.The full formula for WACC is:whererD = The required return of the firm's Debt financing(1-Tc) = The Tax adjustment for interest expense(D/V) = (Debt/Total Value)rE= the firm's cost of equity(E/V) = (Equity/Total Value)V = (D + E), ie Total Firm ValueTo calculate the WACC for a publicly traded company, there is an online WACC Calculator available at http:/www.ThatsWACC.com
When is WACC an appropriate discount rate when doing capital budgeting?
WACC is appropriate where company is using differnt kind of capital like debt and equity for doing capital budgeting.
Why WACC represents an opportunity cost to investors?
Wacc Farmula
What do you mean by horizon value in finding the NPV of a stock?
horizon value = FCF(1+g)/WACC - g where FCF = Free cash flows at current time period or sub zero g= growth rate of firm WACC=weighted average cost of capital ----
What happens to the WACC when the federal reserve tightens credit?
WACC will increase.
What portion of the WACC calculation is impacted by taxes?
The cost of debt is affected by taxes. The debt portion of the WACC is calculated as (total debt / total invested capital)*expected return on debt*(1 - tax rate). More info: http://en.wikipedia.org/wiki/WACC
What impact does WACC have on capital budgeting and structure?
What impact does WACC have on capital budgeting and structure?
What are the effects of a corporate tax on the Weighted Average Cost of Capital of a business?
Only when interest paid on debt is allowed to be tax deductible that a corporate tax will help pull the WACC down. This is because we used an after-tax rate for cost of debt in calculating WACC. And by using the after-tax rate we are assumming that the government allows companies to use interest paid on debt reduce their income tax obligations, hence creating a tax-shield benefit for adding debt. From Peerawich
Why doesn't everyone calculate WACC the same?
because of WACC nature, there are no same utility, and that's why none make same calculation. so WACC=X2+2X3+5X2=0 ? because of WACC nature, there are no same utility, and that's why none make same calculation. so WACC=X2+2X3+5X2=0 ?
How do you solve this finance problem on WACC?
To calculate the Weighted Average Cost of Capital (WACC), you need to determine the weight of each source of capital (equity and debt) in the company's capital structure. Multiply the weight of equity by the cost of equity, and multiply the weight of debt by the cost of debt (adjusted for taxes). Add these results to get the WACC. The formula for WACC is: WACC = (E/V) * Re + (D/V) * Rd * (1 - Tax Rate), where E is equity, V is the total value of the company, Re is the cost of equity, D is debt, Rd is the cost of debt, and Tax Rate is the corporate tax rate.
What is the relationship between wacc and discount rate of return?
relationship between WACC and required rate of return.
