Weighted average cost of capital - Revision history

imported>Doug Williamson: Add link.

2021-07-03T06:02:28Z

Add link.

← Older revision		Revision as of 06:02, 3 July 2021
Line 102:		Line 102:
	== See also ==		== See also ==
	* [[Adverse selection]]		* [[Adverse selection]]
			* [[Capital management]]
	* [[CertICM]]		* [[CertICM]]
	* [[Cost of capital]]		* [[Cost of capital]]

imported>Doug Williamson: Remove surplus link.

2019-02-09T20:28:25Z

Remove surplus link.

← Older revision		Revision as of 20:28, 9 February 2019
Line 110:		Line 110:
	* [[Hurdle rate]]		* [[Hurdle rate]]
	* [[Internal rate of return]]		* [[Internal rate of return]]
	* [[MCT]]
	* [[Net present value]]		* [[Net present value]]
	* [[Opportunity cost]]		* [[Opportunity cost]]

imported>Doug Williamson: Layout.

2017-10-15T09:24:45Z

Layout.

← Older revision		Revision as of 09:24, 15 October 2017
Line 98:		Line 98:

	*Of <u>more than</u> the WACC - of, for example in Example 1 above, 6.8%.		*Of <u>more than</u> the WACC - of, for example in Example 1 above, 6.8%.


	== See also ==		== See also ==
Line 114:		Line 115:
	* [[Optimal capital structure]]		* [[Optimal capital structure]]
	* [[Shareholder value]]		* [[Shareholder value]]


	==Other resources==		==Other resources==

imported>Doug Williamson: Layout.

2017-10-15T09:23:47Z

Layout.

← Older revision		Revision as of 09:23, 15 October 2017
Line 95:		Line 95:
	In order to create or add shareholder value, the managers of this firm would need to earn:		In order to create or add shareholder value, the managers of this firm would need to earn:

	~~(1)~~ An after-tax rate of return on their investment projects		*An after-tax rate of return on their investment projects

	~~(2) Of <u>more than</u> the WACC - of, for example in Example 1 above, 6.8%.~~

			*Of <u>more than</u> the WACC - of, for example in Example 1 above, 6.8%.

	== See also ==		== See also ==

imported>Doug Williamson: Link with Opportunity cost page.

2017-07-30T17:01:42Z

Link with Opportunity cost page.

← Older revision		Revision as of 17:01, 30 July 2017
Line 101:		Line 101:

	== See also ==		== See also ==
			* [[Adverse selection]]
	* [[CertICM]]		* [[CertICM]]
	* [[Cost of capital]]		* [[Cost of capital]]
Line 109:		Line 110:
	* [[Hurdle rate]]		* [[Hurdle rate]]
	* [[Internal rate of return]]		* [[Internal rate of return]]
			* [[MCT]]
	* [[Net present value]]		* [[Net present value]]
			* [[Opportunity cost]]
	* [[Optimal capital structure]]		* [[Optimal capital structure]]
	* [[Shareholder value]]		* [[Shareholder value]]
	* [[Adverse selection]]
	* [[MCT]]


	==Other resources==		==Other resources==

imported>Doug Williamson: Layout.

2016-11-16T21:44:37Z

Layout.

← Older revision		Revision as of 21:44, 16 November 2016
Line 114:		Line 114:
	* [[Adverse selection]]		* [[Adverse selection]]
	* [[MCT]]		* [[MCT]]


	==Other resources==		==Other resources==

imported>Doug Williamson: Removed link

2016-11-16T14:18:43Z

Removed link

← Older revision		Revision as of 14:18, 16 November 2016
Line 101:		Line 101:

	== See also ==		== See also ==
	* [[CertFMM]]
	* [[CertICM]]		* [[CertICM]]
	* [[Cost of capital]]		* [[Cost of capital]]
Line 115:		Line 114:
	* [[Adverse selection]]		* [[Adverse selection]]
	* [[MCT]]		* [[MCT]]


	==Other resources==		==Other resources==

imported>Doug Williamson: Standardise calculations.

2016-01-15T19:01:57Z

Standardise calculations.

← Older revision		Revision as of 19:01, 15 January 2016
Line 20:		Line 20:
	WACC = Ke x ''proportion of equity'' + Kd(1-t) x ''proportion of debt''		WACC = Ke x ''proportion of equity'' + Kd(1-t) x ''proportion of debt''

	= Ke x E / ( D + E ) + Kd(1 - t) x D / ( D + E )		= Ke x E/(D + E) + Kd(1 - t) x D/(D + E)


Line 48:		Line 48:


	WACC = Ke x E / ( D + E ) + Kd(1 - t) x D / ( D + E )		WACC = Ke x E/(D + E) + Kd(1 - t) x D/(D + E)

	= 10 x 100 / ( 100 + 100 ) + 3.6 x 100 / ( 100 + 100 )		= 10 x 100/(100 + 100) + 3.6 x 100/(100 + 100)

	= 10 x 100 / 200 + 3.6 x 100 / 200		= 10 x 100/200 + 3.6 x 100/200

	= 10 x 1/2 + 3.6 x 1/2		= 10 x 1/2 + 3.6 x 1/2

imported>Doug Williamson: Standardise headings with examples

2015-12-02T14:47:34Z

Standardise headings with examples

← Older revision		Revision as of 14:47, 2 December 2015
Line 12:		Line 12:
	(2) Weighted by their current market values.		(2) Weighted by their current market values.


			==WACC calculations==

	For a firm with both equity and debt capital, the WACC would be calculated as:		For a firm with both equity and debt capital, the WACC would be calculated as:
Line 33:		Line 35:


	<span style="color:#4B0082">'''Example 1'''</span>		<span style="color:#4B0082">'''Example 1: Equal equity and debt'''</span>

	Where:		Where:
Line 62:		Line 64:


	<span style="color:#4B0082">'''Example 2'''</span>		<span style="color:#4B0082">'''Example 2: Increasing equity, reducing debt'''</span>

	Making a number of simplifying assumptions, if the proportion of equity were increased to 75% (= 0.75), the proportion of debt would fall to 25% and the WACC might theoretically increase to:		Making a number of simplifying assumptions, if the proportion of equity were increased to 75% (= 0.75), the proportion of debt would fall to 25% and the WACC might theoretically increase to:
Line 73:		Line 75:


	<span style="color:#4B0082">'''Example 3'''</span>		<span style="color:#4B0082">'''Example 3: Reducing equity, increasing debt'''</span>

	If the firm was 'geared up' to reduce the proportion of equity to 25%, and increase the proportion of debt to 75%, again simplifying, the WACC might in theory fall to:		If the firm was 'geared up' to reduce the proportion of equity to 25%, and increase the proportion of debt to 75%, again simplifying, the WACC might in theory fall to:
Line 89:		Line 91:


	===Creating shareholder value===		==Creating shareholder value==

	In order to create or add shareholder value, the managers of this firm would need to earn:		In order to create or add shareholder value, the managers of this firm would need to earn:
Line 115:		Line 117:


	===Other resources===		==Other resources==
	*[http://www.treasurers.org/node/9023 Treasury essentials: Weighted average cost of capital, The Treasurer, May 2013]		*[http://www.treasurers.org/node/9023 Treasury essentials: Weighted average cost of capital, The Treasurer, May 2013]
	*[[Media:2015_11_Nov_-_Balancing_act.pdf\| Balancing act, The Treasurer, 2015]]		*[[Media:2015_11_Nov_-_Balancing_act.pdf\| Balancing act, The Treasurer, 2015]]

imported>Doug Williamson at 09:32, 21 November 2015

2015-11-21T09:32:39Z

← Older revision		Revision as of 09:32, 21 November 2015
Line 115:		Line 115:


	===Other ~~links~~===		===Other resources===
	[http://www.treasurers.org/node/9023 Treasury essentials: Weighted average cost of capital, The Treasurer, May 2013]		*[http://www.treasurers.org/node/9023 Treasury essentials: Weighted average cost of capital, The Treasurer, May 2013]
			*[[Media:2015_11_Nov_-_Balancing_act.pdf\| Balancing act, The Treasurer, 2015]]

	[[Category:Corporate_finance]]		[[Category:Corporate_finance]]
	[[Category:Long_term_funding]]		[[Category:Long_term_funding]]