Question

What is the Weighted Average Cost of Capital, and why is it important?

Answer #1

WACC is the amount required by capital providers per rupee of financing they given to the company.

Company gets financing from different sources,

equity

preference

Debentures

Long term debt

each category has its own conditions attached which the company has to pay them over a period of time.

for example, equity holders expect certain return on their stock, preference holders should be paid dividends in some cases, debt holders need to be paid interest irrespective of profits.

WACC combines all these factors into one number which simply means, what the company minimum required rate of return on its investments so that it can effectively pay its financiers.

It is important because:

it can be used to select investment opportunities which can atleast yield WACC.

It can be used as a performance evaluation tool, where economic value added can be calculated.

Critique Weighted Average Cost of Capital (WACC) concepts, why
is WACC an important tool in the evaluation of capital expenditure
programs, financial structuring strategies, capital projects,
equity recapitalization, dividend determination, financing working
capital expansions, and evaluate WACC methods comparing other
financial analysis applications used with WACC.

Please explain how a company computes their weighted average
cost of capital, and why is it important? Compare the various
components of the cost of capital, and include the tax advantages,
if any, in the explanation.
Please include an explanation in your own words, and a good
example.

What is Votoan’s weighted average cost of capital?

What does the cost of capital represent?
a. The weighted average of the cost of borrowing on a long and
short-term basis
b. The weighted average of fixed and variable costs
c. The weighted average of debt and equity fiancing
d. The weighted average of the incremental cash inflows and
outflows

What is cost of capital and why it is important?

Why does it make sense to use the Weighted Average Cost of
Capital as the minimum required rate of return to analyze a
company’s investment opportunities?

What is weighted average cost of capital how is it
used and when is it not appropriate to use?

What is the weighted average cost of capital of a company that
has debt of $8.505 million and equity of $11.143 million? The
average before-tax cost of debt is 7.30% per annum and the average
cost of equity is 10.10% per annum. The company tax rate is 30%.
Please use three methods – a mathematical formula,
SUMPRODUCT function and SUM array function, to compute the weighted
average cost of capital.

What is a weighted average cost of capital (WACC), and what is a
target capital structure?
What is the project cost of capital and how does it differ from
the WACC?
Should a company use the cost of the specific source of funding
for a project or the WACC as its basis for evaluating the
project?Explain your answer.
What factors affect a company’s weighted average cost of
capital?
Define operating leverage and financial leverage. How does each
relate to risk?...

Explain in detail what the weighted average cost of capital
(WACC) is and the role it plays in capital
budgeting.

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