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When is it appropriate to use a firms weighted average cost of capital?
Wiki User
∙ 14y ago
It is appropriate to use a firm's weighted average cost of capital when valuing a cash flow for the firm. For example, given an investment opportunity where an initial outflow is followed by a series of cash inflows, the company must determine the investments value in present terms to ascertain whether the investment is a viable option for the corporation. The quantify the present value of the future cash flows, the company will use its weighted average cost of capital since this number will embody the required rate of return to meet or exceed the company's cost of financing.
Wiki User
∙ 14y ago
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How do free cashflows and weighted average cost of capital interact to determine a firms value?
they interact because of the gravity
Is a firms cost of capital influenced by net income capital structure or par value of common stock?
Capital structure
Who advises firms when raising capital?
For medium to large size companies, firms typically seek the services of an investment bank.
Is there a universal optimal capital structure that would benefit all firms?
best universal capital structure for all companies?
A firms working capital and its cash requirements?
Working capital is considered a fixed asset and is part of the operational capital. Working capital is calculated as current assets minus current liabilities.
How do free cashflows and weighted average cost of capital interact to determine a firms value?
they interact because of the gravity
Is it better to use book value versus market values of debt and equity rather than book values to calculate a firms Weighted Average Cost of Capital?
HIII. I am taking accounting and in my opinion market values of debt is way better to calculate a firms weight average cost of capital... hope i helped even just a little
Why does the weighted average cost of capital of firms that uses more debt capital lower that that of a firm that uses less debt capital?
Because the cost of debt is generally lower than the cost of equity. This is because in case of financial distress, debt-holders are repaid before the equity holders are, as well as because debt has the assets of the firm as collateral and equity does not.
What are Factors affecting weighted average cost of capital?
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.
How do free cash flows and the weighted average cost of capital interact to determine a firms value?
Free cash flows represent the cash generated by a firm that is available to be distributed to investors. The weighted average cost of capital (WACC) is the average rate of return required by investors in order to finance the firm's operations. By discounting the free cash flows at the WACC, we can determine the present value of those cash flows, which ultimately determines the firm's value. If the present value of the free cash flows exceeds the firm's invested capital, then the firm is considered to have positive value.
Is a firms cost of capital influenced by net income capital structure or par value of common stock?
Capital structure
What is a place for trading?
Ways by which firms may raise capital.
Why must firms make decisions about which goods they will produce?
because firms have access to limited resources of land, labor, and capital
Who advises firms when raising capital?
For medium to large size companies, firms typically seek the services of an investment bank.
How does the capital consumption allowance affect the firms cash flows?
answer the question
Why are small firms important?
Small firms are important because it helps the beginner businessman to start his business with a limited initial capital investment.
Is there a universal optimal capital structure that would benefit all firms?
best universal capital structure for all companies?
