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Weighted average cost of capital approach (WACC) Derive a weighted cost of the capital obtained from the various sources and use that discount rate to discount the unlevered free cash flows from the project; Advantages: Overcomes the requirement for debt capital finance to be earmarked to particular projects
The cost of debt may be calculated for each period as the scheduled after-tax interest payment as a percentage of outstanding debt; see Corporate finance § Debt capital. The value-weighted combination of these will then return the appropriate discount rate for each year of the forecast period.
To calculate the firm's weighted cost of capital, we must first calculate the costs of the individual financing sources: Cost of Debt, Cost of Preference Capital, and Cost of Equity Cap. Calculation of WACC is an iterative procedure which requires estimation of the fair market value of equity capital [citation needed] if the company is not listed.
Weighted average cost of capital equation: WACC= (W d)[(K d)(1-t)]+ (W pf)(K pf)+ (W ce)(K ce) Cost of new equity should be the adjusted cost for any underwriting fees termed flotation costs (F): K e = D 1 /P 0 (1-F) + g; where F = flotation costs, D 1 is dividends, P 0 is price of the stock, and g is the growth rate. There are 3 ways of ...
A financial calculator or business calculator is an electronic calculator that performs financial functions commonly needed in business and commerce communities [1] (simple interest, compound interest, cash flow, amortization, conversion, cost/sell/margin, depreciation etc.).
However, with the right resources and preparation, you can still pay off your debt in tough financial times – and know that the storm, and your balance, aren’t going to last forever.