IGNOU MCO 7 2017 2018 - What is weighted average cost of capital? Examine the rationale for us

Question

What is weighted average cost of capital? Examine the rationale for using weighted average cost of capital?

23 Jan 2018

Answer :

Word Count : 1001

eighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is proportionately weighted.

All sources of capital, including common stock, preferred stock, bonds and any other long-term debt, are included in a WACC calculation. A firm’s WACC increases as the beta and rate of return on equity increase, as an increase in WACC denotes a decrease in valuation and an increase in risk.

To calculate WACC, multiply the cost of each capital component by its proportional weight and take the sum of the results. The method for calculating WACC can be expressed in the following formula:

Image ignouacademy-com--p-2018-40042

Where:
Re = cost of equity
Rd = cost of debt
E = market value of the firm's equity
D = market value of the firm's debt
V = E + D = total market value of the firm’s financing (equity and debt)
E/V = percentage of financing that is equity
D/V = percentage of financing that is debt
Tc = corporate tax rate

Read more: Weighted Average Cost Of Capital - WACC https://www.investopedia.com/terms/w/wacc.asp#ixzz55eizDFDD
Follow us: Investopedia on Facebook

Securities analysts frequently use WACC when assessing the value of investments and when determining which ones to pursue. For example, in discounted cash flow analysis, one may apply WACC as the discount rate for future cash flows in order to derive a business's net present value. WACC may also be used as a hurdle rate against which to gauge ROIC performance. WACC is also essential in order to perform economic value added (EVA) calculations.

Investors may often use WACC as an indicator of whether or not an investment is worth pursuing. Put simply, WACC is the minimum

__________ ________ ____ _______ ________.
___ ____ ______ __________ __________ ___ __________.
________ _______ ________ _____ _____ ________ ______ ______ ______ __________ ______ __________.
________ _____ __________ ________ _______ ___ _________ _____.
____ ________ _________ ______ _________.
_______ ________ ___ _________ ___ __________ ____ _____ ________ ______ _________.
__________ ___ _____ _________ ___.
_________ _______ ___ ___ __________ ________ ________ __________.
_____ _____ _________ _______ ______.
_______ ________ _________ _______ ______ _____ _________ _________.
_________ _________ __________ __________ ___.
____ _________ ______ ___ _______ ________ ___ ______ _____.
______ __________ _____ ________ ___ _________ ________ __________ _________ _________ _________ __________.
_______ ______ _______ ___ ______ _________ ______ __________ ____ _________ _______.
_____ _________ ______ _______ ___ ______ ______ _______.
____ ____ _______ __________ __________.
___ ______ ______ _______ ________ __________ __________.
___ ___ _____ __________ _________ ____ ___.
_________ ______ ________ ___ ____ ____ _________ ___ ____ __________ ________ _________.
_______ ____ _________ ___ _______ _____ _______.
___ _______ ___ ____ ________.
________ ___ _____ ____ ________ _____.
_________ ________ ____ _________ __________ _______ ___ _____ _____ _________ ________ _________.
____ _____ _______ _____ ______ __________ __________.
___ _____ _________ ________ _____ ______ ________.
________ _______ __________ ___ _______ _________ _________.
________ ___ _______ _____ _____.
________ _______ ___ ___ ___ ______ ____.
____ ______ ___ ___ ______ ______ ___ ____.
________ ______ ___ _________ ___ _________ ___ ________ _______ ____ _______.
_____ _____ _______ ______ ________ ___ ___ _______.
__________ _________ _____ ______ _______ ________ ____ _______.
______ ____ _________ ________ _________ ________ ___ _______ ________ ____ ________.
__________ _________ ________ ______ ________ _______ ___.
________ _______ _______ ____ ____ ________ ______ _______.
___ ________ ________ _____ ____ _____ ______.
___ _______ ____ _______ __________ ______ __________ _______ ___.
________ _________ _________ ______ _____ ________ ______ ____ ____.
_________ _________ ________ _________ __________ _____ ________ _____ _________ _________ _______ __________.
__________ __________ _________ _______ _____ ____ ___ ________.
__________ __________ ______ ___ ________.
____ ________ ________ _________ ________ ____ ___ ____.
_______ ____ ________ ________ _______ _________ __________ _________ ______ _________ ___.
__________ _______ __________ __________ _________ ________ _____ _________ _____.
_______ _____ ________ ________ _____ ______ _____ __________ ____.
___ ____ _____ _______ ___ ____ __________ ____ _________.
____ _____ _______ _____ ______ _________ _______.
_________ ____ _____ ______ ____ ___ ____ __________ _______ _________ ____ ______.
___ __________ ____ __________ ___ _______ __________ _____ ___.
_____ _____ _________ _______ __________ __________ _____ __________ ________ ________ ________.
______ ________ ____ ___ ________.
_____ __________ _____ __________ _____ _____ _______.
_______ __________ ________ ____ ________ ____ ________ _______ __________ __________ ________ _______.
_________ _________ _____ ________ _______ _____ ____ ________ ______.
_______ __________ _____ _____ __________ ___ ____ _________ _______ ______ ____.
_________ __________ _____ _____ _________ ___ _________ _____ ____.
_______ _______ _________ _______ _______ ____ ____.
_______ ________ _________ ______ ___ ___ _____.
___ __________ ________ ____ ___ _______ _________.
______ _______ ____ ________ ___ ______ __________ _____ __________ ________ ____.
____ __________ _____ __________ _____ ________ _____.
_________ ___ _______ __________ ________ _____ _____ ___ _____.
_________ _________ ________ __________ ____ ___ ______ _____ ___ ___.
__________ ___ ________ ___ _________.
___ _________ ___ __________ _________ ________ _____ _______ ________ _______ _________ ____.
________ ______ _______ ______ _________ ________ _____ ______.
__________ _______ ________ __________ _________ _________.
__________ _________ __________ ____ ____ _______ ______ __________ ___ _____.
________ ____ ______ ____ _______ ______ _________ __________ _____ _______.
________ __________ _________ __________ _______ ______ _________.
_______ __________ _______ _______ __________ _______.
___ _________ _______ ______ ___ _____ _______ _________ ____ _________ ____.
_________ ________ _________ _____ ______ _______ ______ ______ _______ ________.
______ ______ _____ ________ __________ ____ _______ ____ _________ ______.
_______ ______ __________ ______ _____ ________.
_________ ____ _________ _________ ______ ___ _________ ____ ______ _________ ______.
____ _______ ______ ___ ______ _________ _________ _________.
_______ ____ __________ ______ _____ ________ _____ _____.
_____ ____ ______ ________ ______ ___ __________ ________ _____ ______.
_____ _____ __________ ______ _______ _____ ______ _______ _____.
_____ ____ _____ _______ ____ _____ ___ ________ ____ ______ ___.
_____ _____ ___ _______ ____ _______ _____ ______.
______ __________ ______ _____ _________.
_________ ____ _______ _________ _____ ______ _______ ____ __________ ________.

IGNOU ACADEMY

Your IGNOU journey, made easier.

Solved Assignments
Study Notes
Guess Papers
Question Papers

Call Us WhatsApp

STUDY • PREPARE • SUCCEED

Skip in 10

IGNOU Solved Assignments Assignments Ignou Projects Project Previous Year Solved Exam Papers Notes Notes Sample Question Papers Sample Question Papers