• Investing and Financial Markets
  • Taxes and Tax Preparation

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

User Avatar

Wiki User

βˆ™ 2008-09-02 16:03:36

Best Answer

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.

2008-09-02 16:03:36
This answer is:
User Avatar

Your Answer


Related Questions

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:

Do you include income taxes payable for calculating working capital calculation?


Is taxes withheld from paychecks that pay an employers portion of Social Security taxes?

you bet

What happen to the marginal-cost curve when there is a reduction in business property taxes?

There will not be any change.

What is an exception in the tax law that allows some people or businesses to avoid paying taxes?

marginal tax

What taxes are referred to in EBITDA calculation?

EArnings before income tax, depreciation and amortization.

What will pay workers at a level that maximizes the company?

Is it A) Costs B) Taxes C) Profits D) Marginal Revenue

What does it mean when your federal taxes have been impacted?

It means they're coming in wrong and pressing up against your other taxes. You need to have the IRS extract them.

What specific taxes makes up a large portion of the federal taxes paid by American workers?

social security tax

How much will the taxes be if you win a 385000 house?

The highest marginal tax rate at this time is 35% X 385000 = 134750

What portion of tips are subject to FICA taxes?

All tips are subject to FICA taxes until you hit the wage cap for the year.

What taxes are excluded from the calculation of EBIT?

Generally "taxes" is referring to income tax. Essentially, it is any tax a company pays but does not pass directly to its customers. Of course, all taxes are passed on but in the form of higher prices.

If Marginal propensity to consume of 06 and a marginal propensity to import of 02 the government increases its spending by 2 billion and raises taxes by 1 billion what happens to equilibrium income?

The equilibrium income would increase 1.06 billion dollars.

Does the winner of a PGA Tournament receive all his winnings or only a portion?

They have to pay taxes.

Will I be able to deduct a portion of my local property taxes from my NY state income tax?

No. However, you can deduct property taxes from your federal tax liability.

What do you do when marginal costs exceeds marginal revenue?

When MC>MR, then there is an overallocation of resources. This usually happens with a negative externality. The government tries to taxes these businesses so that they will produce less. Therefore, a way to fix overallocation of resources is to tax that company and reduce their output.

Mogul officials called kept a portion of the paid taxes paid by peasants as their salaries?


Who was known as the local officials that kept a portion of the taxes paid by the peasants in lieu of a salary?


Paid cash for your home 119271.71 where does this amount go on your taxes for 2007?

Purchasing a house is not tax-deductible.You can deduct mortgage interest (which you do not have) and property taxes. If you received a property tax credit from the seller, which appears on the settlement sheet from your closing, you must net that against any taxes you paid during 2007. If there was any credit for taxes due in 2008, net that portion of the credit against property taxes you pay in 2008 to figure your deductible portion.

I inherited an IRA from my mother who passed away last year. Do I have to pay taxes on the IRA Does it go directly on my Income Thanks.?

Yes, you will have to pay taxes. You can take the money lump sum and pay the taxes this year, or you can roll it over into an inherited IRA and pay the taxes as the money is distributed. You will be taxed at your normal marginal tax rate.

Can you get a tax refund if you receive social security benefits?

Actually, yes. Unlike some pension systems, SSA actually asks what percent of benefit you wish to have withdrawn for taxes. Thus, if you have more taken out than you will owe in taxes (that is, your marginal tax rate,) you will get a refund when you file your taxes.

In a 401k when you eventually pay taxes which taxes do you pay?

Distributions from your 401K after you reach your retirement age the taxable amount will be subject to federal income tax at your marginal tax rate and may be subject to some state income tax.

What is the marginal tax rate if you pay 25000 in taxes on an operating loss of 100000?

The question cannot be answerd. Marginal (or effective rates for that matter), need to be based on taxable, (or perhaps in a convoluted way), book income. Certainly not on operating income, and note this is an operating loss! And not knowing anything else, the marginal rate, which is on the next level of income, we need to know if the rate changes at what level.

What is the difference between rates and taxes?

This would depend on how the words are used. The federal income tax marginal tax rates (brackets) would be the percentage amount that is applied to each bracket amount of income for that filing status. The bracket percentage amount go from -0- percent to the maximum 35% for the 2009 tax year income. Taxes Income tax liability would be the amount of taxes that is owed on your taxable income at your marginal tax rates after your income tax return is completed correctly for the year.

What is non exempt equity?

Non exempt equity is the portion of something that exceeds the maximum allowance for taxes by law. This means you will only have to pay taxes on part of the equity and not the whole thing.