calculate WACC using Financial Statements? How do we calculate WACC using Financial Statements? How do we calculate WACC using Financial Statements? How do we calculate WACC using Financial Statements? How do we calculate WACC using Financial Statements? How do we calculate WACC using Financial Statements? How do we calculate WACC using Financial Statements? How do we calculate WACC using Financial Statements? How do we calculate WACC using Financial Statements? How do we calculate WACC using
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Capital 1 Weighted Average Cost of Capital (WACC) • This lecture answers the following questions: - What is the “opportunity” cost of funds for a firm, and thus the firm’s discount rate used in NPV calculations? - What is a firm’s Asset Beta & how do we lever Asset Betas and unlever Equity Betas? - Link to previous lectures - No longer use a “given” discount rate. We will calculate the correct discount rate for our NPV calculations. WACC - 1 2 1.0 The Cost of Capital: Some Preliminaries
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Wacc for Verizon Communications Inc Answer the following questions concerning WACC: 1. What is the WACC of the company? The WACC for Verizon Communications Inc. is 4.74% 2. What does WACC represent to the firm? The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. It is the rate of return required by investors. Investors use WACC as a tool to value a project. If the project is below WACC, it will not generate enough return for
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division WACCs must be calculated. Management team at Midland Energy Resources Inc. can determine which of the three appropriate WACC figures to be used for future company reports. In order to calculate Midland Energy Resources’ corporate WACC, the calculations are based on the formula below, where ������������ and ������������ are the cost of equity and debt respectively, D and E are the values of debt and equity respectively, V is the company’s enterprise value, and t is the tax rate. WACC estimates
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Question #5 How does WACC change over time? What do you think might drive the changes? WACC is the opportunity cost of investing in a company, or the expected return of shareholders and debt holders. WACC consists of all capital sources and includes common stock, preferred stock, short-term debt and long-term debt in the calculation. WACC is the average costs of capital financing, and tells us how much a company has to pay for each dollar of financing. WACC for any company will
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What is he WACC and why is it so important to estimate a firms cost of capital? The WACC (weighted average cost of capital) is a percentage figure resulting from a calculation method by which the adequate cost of capital of a firm is expressed. It considers the composition of a company’s funding, be it debt or equity. A corporation whose source of funding is equity by 100 percent will have a WACC equal to the cost of equity. By contrast, a levered company will have to reflect the cost of debt as
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Haverford Company sold a $1,000 par value bond that now has 25 years to maturity and an 8.00% annual coupon that is paid quarterly. The bond currently sells for $900.90, and the company's tax rate is 40%. What is the component cost of debt for use in the WACC calculation? A. 5.40% B. 5.73% C. 5.98% D. 6.09% E. 6.24% 2) Assume that Mary Brown Inc. hired you as a consultant to help it estimate the cost of capital. You have been provided with the following data: D0 $1.20; P0 $40.00; and g 7%
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WACC What does Weighted Average Cost Of Capital (WACC) mean? A calculation of a firm's cost of capital in which each category of capital is proportionately weighted. All capital sources - common stock, preferred stock, bonds and any other long-term debt - are included in a WACC calculation. All else equal, the WACC of a firm increases as the beta and rate of return on equity increases, as an increase in WACC notes a decrease in valuation and a higher risk. The WACC equation is the cost of each
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Once funded, a project/investment’s performance was measure in two ways. The first being actual performance vs forecasted plan over 1, 3, and 5 year periods, and the second being Economic Value Added (EVA). EVA was calculated as: EVA = EBIT(1-t) – WACC(period capital expenditure) Midland Energy Capital Planning Model • Optimize capital structure • Midland primarily optimized its capital structure by taking advantage of the borrowing capacity inherent in its energy reserves and long term
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Pepsi Co With the assumptions given in the case, we estimated the WACC to be 12.23%. The cost of equity represented in the WACC was calculated using the geometric mean return on T-bonds and the long-term government bond rate (4.5%) as the appropriate risk free rate. We chose this over the arithmetic mean return using T-bills under the assumption that the geometric mean is more appropriate to use in estimating the expected return over longer time horizons, especially because as we go towards longer
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