WACC Weighted Average Cost of Capital in 3 Minutes

GD Star Rating
loading...

(See infographic & cheat-sheet PDF below)


Download my LECTURE SLIDES on Amazon:
https://www.amazon.com/author/mbabull ! *The EASY slides to my lectures you’ve been wanting. Saves you LOTS of TROUBLE taking notes and stuff. Read on Laptop, iPad, Android, & others (install KindleApp)

Download my FREE Cheat-Sheet PDF for WACC Weighed Average Cost of Capital click here

  • Money (capital) needed to run a company comes from either borrowing (debt) or the owners’ money (equity).

 

  • The COST of capital is either the interest payment on the debt, or the required profit that the owners want in return for their investment (in MBA bullshit language: “expected return”).

 

 

  • When you COMBINE BOTH the interest rate of debt AND the ‘expected return’ of the investors/owners, we get the total cost of capital.

 

  • If the cost of debt (e.g. interest) and cost of equity (expected return) are different, then we have to get an AVERAGE of the two to get our COST OF CAPITAL

 

  • Cost of capital is expressed as a percentage; because it’s compared to the total capital (as a percentage of the total capital).  Just like bank loan interest is expressed as a percentage of  your total loan.

 

  • What if your company has more debt vs. equity, OR vice versa? Then our formula must give more importance or ‘WEIGHT’ to whichever is bigger; and must give LESS weight to whichever is SMALLER.  Thus, we have the WACC or Weighted Average Cost of Capital concept.

 

  • This is the basic WACC or Weighted Average Cost of Capital Formula:

WACC = (Debt Proportion)(Cost of Debt %)(1 – tax rate %) + (Equity Proportion)(Cost of Equity %)

  • To understand this formula step-by-step in action, watch my free video below.

Step-by-step WACC Calculation
Part 1

Step-by-step WACC Calculation
Part 2


 

Embed This Image On Your Site (copy code below):

GD Star Rating
loading...
WACC Weighted Average Cost of Capital in 3 Minutes, 4.6 out of 5 based on 28 ratings
Comments
  1. Talha Saleem
  2. vanessa cuba
  3. mohamed
    • David
  4. Pam
    • David
  5. Saf
  6. fiume
    • David
  7. April Ondis
    • David
  8. Leo
    • David
  9. Mitch Fleming
    • David
  10. Rosa
  11. Arheen
    • David
  12. olubunmi oladele-ajose
    • David
  13. mba
    • David
  14. krishna rd
    • David
  15. steve
    • David
  16. Kubra
    • David
  17. Yemi
    • David
  18. Hloni
    • David
  19. Sham
    • David
  20. SA
    • David
  21. Anil
    • David
  22. Sarwan
  23. Ling

Leave a Reply

Your email address will not be published. Required fields are marked *