FACULTY OF BUSINESS

ACCOUNTING SCHOOL

ACADEMIC REPORT

COURSE:

INTRODUCTION TO ACCOUNTING

AUTHOR:

SURNAME, NAMES

TEACHER:

Dr. TOMAS AGUILAR, SEGUNDO

Huaraz - Perú

(2023)
 I. INTRODUCTION

The Weighted Average Cost of Capital (CPPC), or Weighted Average Cost

of Capital (WACC) in English, plays a crucial role in the financial management of
contemporary companies. In essence, the WACC represents the rate of return that
a company must generate to meet the expectations of its investors and financiers.
This indicator is fundamental, since it represents the rate of return that a company
must generate to meet the expectations of investors and financiers. Made up of
elements such as the cost of debt, which reflects the interest paid on loans, and
the cost of equity, which represents the return demanded by shareholders, the
WACC guides strategic decisions related to capital structure and project
execution.

The relevance of the WACC is not limited to its technical complexity;

transcends into strategic decision making. This indicator directly affects the capital
structure of an organization, influencing crucial decisions, such as the expansion
of operations, evaluation of investment projects and financial risk management. In
this sense, the WACC is revealed as a determining element that guides business
choices towards achieving profitability.

In summary, the importance of WACC focuses on being an essential indicator for

business decision making. Understanding and analyzing this topic helps financial
professionals navigate the complex terrain of how companies manage their
economic resources to create value and thrive in challenging business
environments. The technical complexity of the WACC translates into its palpable
influence on decision-making, highlighting its central position in modern financial
management.

I. DEVELOPMENT
 A. Components of the WACC
The Weighted Average Cost of Capital (WACC) is made up of
several key elements that play fundamental roles in the financial
structure of a company. It is essential to understand each of these
components to fully appreciate the function and application of WACC
 • Cost of Debt

The cost of debt represents the interest paid by the company on its
loans. This component is essential, since it reflects the financial cost
associated with borrowing. Companies can incur different types of
debt, and calculating the cost of debt involves considering applicable
interest rates. Variability in these rates can come from factors such
as market conditions and the company's credit rating.

 Cost of Own Capital

The cost of equity capital reflects the return demanded by
shareholders as compensation for taking risks by investing in the
company. This component is derived from shareholders' expectation
of obtaining a return that justifies the risk associated with owning
shares. Calculating the cost of equity involves evaluating factors
such as the risk-free rate of return, market return, and the company's
systematic risk, as measured by beta. The result is a rate that
reflects the return expected by shareholders.

 • Cost of Senior Debt

In situations where the company issues senior debt, this component

is added to the WACC calculation. Preferred debt has different
characteristics, since it has priority in the payment of dividends over
common shares. Calculating the cost of preferred debt involves determining
the interest rate or dividend that the company agrees to pay to the holders
of the preferred debt. This component is added to the WACC to reflect the
company's entire capital structure.

 Calculation

Within this section you will understand the crucial process of

calculating the Weighted Average Cost of Capital (WACC), a fundamental
tool in corporate finance. WACC contains essential elements such as the
following: the cost of debt, the cost of equity capital and, if applicable, the
cost of senior debt. Each of these components constitutes an intrinsic part
of the financial structure, influencing the company's strategic decisions.

 Weight Assignment

Rigorous determination of the proportion of each component in the

capital structure is crucial. This weight assignment reflects the relative
influence of each financing source in the total structure. Each assigned
weight is a strategic measure that directly impacts the appropriate weighting
of each component in the WACC calculation.

 Individual Cost Calculation

A detailed and accurate analysis of the costs associated with each

component is carried out. Debt interest rates are examined to
understand the cost of using external capital, the returns required by
shareholders for equity capital are evaluated and, in the case of
senior debt, the specific terms of this source of financing are
explored.

• Weighted Sum of Costs

The meticulous and weighted combination of the calculated costs of

each component reflects the relative importance of each financing source in
the total cost of capital. This process considers not only the numerical
values, but also the strategic influence of each component in financial
decision making.

• WACC formula

Presentation of the WACC formula as a guide and capital weighting.

A. Relevance of the WACC
The Weighted Average Cost of Capital (WACC) plays a central role
in a company's financial and strategic decisions. This indicator, derived from
the weighted combination of financing costs, exerts a significant influence
on the capital structure. Two fundamental components, the cost of debt and
the cost of equity capital, reflect the financial dynamics that guide decision-
making.

The importance of the WACC focuses on the evaluation of

companies. By providing a required rate of return, the WACC becomes a
guide that guides business decisions toward profitability. This tool not only
analyzes financial efficiency, but also contributes to maximizing shareholder
value and managing financial risks intelligently. In short, the WACC is not
just a technical formula; It is an essential indicator for financial decisions
that shape the future of a company.

B. Análisis
In the analysis of the importance of the Weighted Average Cost of
Capital (WACC), its fundamental role in the financial and business
environment is highlighted. In the foreground, the WACC is presented as a
key tool to evaluate the profitability necessary in strategic decisions and
investments. Its ability to consider both the cost of debt and equity offers a
comprehensive view of the company's financial structure, providing
essential guidance.

WACC is a tool that adapts and contributes to the complex financial

landscape, evaluating its effectiveness in business decision making and its
 continued role in financial management. This analysis seeks to clarify the
true magnitude of the importance of WACC in the current business context.

II. BIBLIOGRAPHIC REFERENCES