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  • Cost of Capital

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    Norman Spiels
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    Weighted Average Cost of Capital (wacc) incorporates the required rates of return of the firm's lenders and investors. Most firms raise capital with a combination of debt, equity, and hybrid securities. WACC is used as a starting point for determining the discount rate for investment projects.

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    Weighted Average Cost of Capital (wacc) incorporates the required rates of return of the firm's lenders and investors. Most firms raise capital with a combination of debt, equity, and hybrid securities. WACC is used as a starting point for determining the discount rate for investment projects.

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    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
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    4 views8 pages

    Cost of Capital

    Uploaded by

    Norman Spiels
    Weighted Average Cost of Capital (wacc) incorporates the required rates of return of the firm's lenders and investors. Most firms raise capital with a combination of debt, equity, and hybrid securities. WACC is used as a starting point for determining the discount rate for investment projects.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 8

    COST of CAPITAL

    Cost of Capital
    Rate of return that the suppliers of capital:
    Bondholders Stockholders

    require as compensation for their contribution of capital. cost of capital depends primarily on the USE of funds, not the SOURCE of funds

    Marginal Cost
    Cost of raising additional funds for potential investment project (MCC).

    Weighted Average Cost of Capital ( WACC)


    incorporates the required rates of return of the firms lenders and investors and the particular mix of financing sources that the firm uses. Most firms raise capital with a combination of debt, equity, and hybrid securities.

    Purpose of WACC
    WACC is used to value the firm. WACC is used as a starting point for determining the discount rate for investment projects the firm might undertake. WACC is the appropriate rate to use when evaluating performance, specifically whether or not the firm has created value for its shareholders.

    The WACC equation

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