Question

What are the different uses of WACC? How would the current economic climate affect these uses?

Answer 1

Different uses of weighted average cost of capital-

A. It is used in various capital budgeting project decision making.

B. It is used to calculate the expected rate of return of various investment.

C .it is used in various kind of valuation method to discount the probable values of company.

D. it is also used to capitalise the overall company value by dividing through the cost of capital by the adequate cash flows

E. it is used to find out the present value of various projects using discounted cash flow method.

Yes, the Current economic climate will affect the use of weighted average cost of capital because it will have to be adjusted with more of the risks which are embedded with covid-19 and it will also have to adjust more of the demand slow down and growth structure as well as expected rate of return should always be adjusted in such climate.