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Does Weighted average cost of capital is an important part of financial calculations?

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Question added by Muhammad Usman Tariq , Visiting Faculty , National University of Science and Technology
Date Posted: 2014/10/09
SREEDEVI SUNILKUMAR
by SREEDEVI SUNILKUMAR , Business finance officer , Emirates Airline

Yes

 

A calculation of a firm's cost of capital in which each category of capital is proportionately weighted. All capital sources - common stock, preferred stock, bonds and any other long-term debt - are included in a WACC calculation. All else equal, the WACC of a firm increases as the beta and rate of return on equity increases, as an increase in WACC notes a decrease in valuation and a higher risk.

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