Question

Please, calculate the WACC (Weighted Average Cost of Capital) of Facebook, Inc. for the year 2017.

Please, calculate the WACC (Weighted Average Cost of Capital) of Facebook, Inc. for the year 2017.

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Answer #1

Facebook Average Equity = (Equity2017 + Equity2016)/2 = (74347 + 59134)/2 = 66740.5
Facebook Average Debt = (Debt2017 + Debt2016)/2 = (10177 + 5767)/2 = 7972

Facebook Cost of Debt = Interest Expense2017/Average Debt = 6/7972 = 0.07%
Facebook Tax Effective Rate = Tax Expense2017/PBT2017 = 4660/20594 = 22.63%

Facebook Beta(from Reuters) = 0.74
Risk Free Rate(10 Year G-Bond Yield from Bloomberg) = 2.86%
Equity Risk Premium (From Damodaran's Page - NYU Stern) = 5.08%

Cost of Equity = 2.86% + 0.74 x 5.08% = 6.62%

WACC = WeKe + Wd x Kd x (1 - Tax Rate)  
WACC = 66740.5/(66740+7972) x 6.62% + 7972/(66740+7972) x 0.07% x (1 - 0.2263) = 5.92%

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