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What portion of the WACC calculation is impacted by taxes?

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βˆ™ 2006-08-01 04:55:22

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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

2006-08-01 04:55:22
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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 ?


What portion of the WACC calculation is impacted by the marginal taxes?

The WACC is determined from two separate calculations, one based on the cost of equity and the other on the cost of debt. The 'cost of debt' calculation can take into account the tax rate. The whole calculation uses five variables, and the tax rate serves to reduce the 'cost of debt' percentage. The bigger the tax rate, the greater the impact on the cost of debt. The lower the tax rate, the smaller the impact. However, as there are five variables in the whole calculation, and the sums, magnitude and significance will differ from company to company, the only way to determine the impact of tax rates (marginal or otherwise) in a particular case is to do comparative calculations of WACC, one with, and the other without the tax rate element. By calculating the difference between the two results, one can determine the precise impact/significance of including/excluding tax considerations when calculating WACC for a particular corporate scenario. In a company with a large cost of debt and a small cost of equity, the effect of the rate of tax (in the WACC calculation) will be higher than that in a company with a high cost of equity and a low cost of debt. In other words, the relative weighting of the 'cost of debt' against the 'cost of equity' is an important influencing element in the WACC computation. N.B. When calculating WACC, the 'after-tax' percentage (i.e. with due allowance for the tax rate,) is generally considered to be a better indicator of the true WACC for a particular company than omitting tax liabilities entirely from the calculations.


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.


How do you calculate WACC?

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What is the WACC of RIL?

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Why WACC represents an opportunity cost to investors?

Wacc Farmula


What happens to the WACC when the federal reserve tightens credit?

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What impact does WACC have on capital budgeting and structure?

What impact does WACC have on capital budgeting and structure?


How do you find the weighted average cost of capital at various combinations?

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What is the relationship between wacc and discount rate of return?

relationship between WACC and required rate of return.


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 the WACC of Disney corporation?

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Did Euclid have any friends?

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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.


Which ciruscometances wacc can be used as investment appraisal?

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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.


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Is this gymnastics poem good?

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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


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The objective of capital structure is minimize the WACC cost.


What do you mean by horizon value in finding the NPV of a stock?

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Harrys inc is considering a project that has the following cash flow and wacc data what is the projects npv?

Harry\'s Inc. is considering a project that has the following cash flow and WACC data. What is the project\'s NPV? Note that if a project\'s projected NPV is negative, it should be rejected. WACC: 14.75% Year 0 1 2 3 4 5 Cash flows -$1,000 $300 $300 $300 $300 $300 A. $10.58 B. $13.02 C. $11.63 D. $9.07 E. $10.12 You can also get answer on onlinesolutionproviders com thanks


Can one minimize WACC when there is a constraint on raising debt and if so how?

These sites provide great information on the topic of WACC: * http://www.duke.edu/~charvey/Classes/ba350_1997/corp/corp.htm * http://www.cbe.uidaho.edu/bus343/Spring03/Michele/2103CoC%20cwtr%20HO.ppt#258,4,Slide 4 * http://cbdd.wsu.edu/kewlcontent/cdoutput/TR505r/page28.htm