What impact does WACC have on capital budgeting and structure?
WACC is appropriate where company is using differnt kind of capital like debt and equity for doing capital budgeting.
The objective of capital structure is minimize the WACC cost.
Because it lets the firm know what return it must get on its capital to maintain the value of the company.
See the following Wiki topic: http://en.wikipedia.org/wiki/Capital_budgeting
optimal capital stucture is that where the firm value is high and the wacc of the firm is low and that capital structure a firm can follow constantly and that capital stucture not become a burdon on firm.
WACC stands for weighted average cost of capital. So after tax means cost of capital after taxes are taken into account.
WACC stands for weighted average cost of capital. So after tax means cost of capital after taxes are taken into account.
how to calculate WACC how to calculate WACC how to calculate WACC how to calculate 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.
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.
Cost of capital is that amount which is incurred by business to acquire cost for working capital or business while WACC(Weighted average cost of capital) is that cost which is calculated if there is more than one type of capital is involved by business to arrange finances for business.
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