What are Factors affecting weighted average cost of capital?

Answer 1

You can calculate WACC for any company that is publicly traded (on a US exchange) at http://ThatsWACC.com.

You type in the firm's stock ticker symbol, and the site will pull back the relevant figures from the firm's balance sheet and income statement to generate the cost of debt, cost of capital, and the relative proportions of each.

Answer 2

The weighted average cost of capital is the average cost of a firms financing i.e. both debt and equity financing. Usually debt is much cheaper than equity due to equity investors higher risk appetite. The return they expect hence is much higher than banks and bond holders.

The cost of debt is also net of tax benefit as interest on debt is tax deductible which reduces the tax liability of a firms profits.

Answer 3

Internal factors are:

• the firms dividend policy
• investment policy
• capital risk structure

external factors will be:-

• interest rate going up or down
• tax rate
• the market's performance

Answer 4

To calculate the weighted average cost of capital is explained in the following formula. You have to get the average of the cost of the sources of finances. Which is the offset by the interest rates the company has to pay.

Answer 5

the rate that a company is expected to pay on average to all its security holders to finance its assets.