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Weighted Average Cost of Capital (WACC) blends debt and equity costs based on capital structure weights; company hurdle rate for investments.
ସୂତ୍ର
Calculate WACC = (E/V)×r_e + (D/V)×r_d×(1-Tc)
- E
- E value — Variable used in the calculation
- V
- V value — Variable used in the calculation
- D
- D value — Variable used in the calculation
- Tc
- Tc value — Variable used in the calculation
ଷ୍ଟେପ୍-ଷ୍ଟେପ୍ ଗାଇଡ୍ |
- 1Input debt weight/cost, equity weight/cost (from CAPM)
- 2Calculate WACC = (E/V)×r_e + (D/V)×r_d×(1-Tc)
- 3Use as discount rate for DCF
ସମାଧାନ ହୋଇଥିବା ଉଦାହରଣ
ଇନପୁଟ୍
60% equity at 10%, 40% debt at 5%, 25% tax rate
ଫଳ
WACC ≈ 7.4% (blended cost)
Most companies use 8-10%
ଏଡ଼ାଇବା ଯୋଗ୍ୟ ସାଧାରଣ ଭୁଲ
- ✕Using market values instead of targets
- ✕Neglecting tax effects on debt
ବାରମ୍ବାର ଜିଜ୍ଞାସା
Why multiply debt cost by (1-T)?
Tax deductibility of interest reduces effective debt cost.
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