[學術台] 基礎Finance知識 - WACC

25 回覆
10 Like 1 Dislike
2017-04-21 23:59:13
Simple way to learn WACC:

1. To do business, you need money
We call that amount of money => "Capital" (資本)

2. Where do you get this "Capital" ?
Get it from either
(i) company owners/investors => EQUITY
or (ii) borrowing from banks or other sources => DEBT

3. If you borrow $$ from banks, you need to pay the cost
=> interest on your loan
e.g. if interest rate is 10%, then your cost of capital is 10%

4. If you get the capital from investors, you still need to pay the cost
=> expected return of investors
If investors are expecting a 10% average return by investing with you,
then your cost of capital is 10%

5. What if you get capital from both investors and banks, like 60% of your capital coming from debt and the remaining 40% coming from equity? Then how to calculate the cost of capital?
=> Use WACC, Weighted Average Cost of Capital

Example:
Company Tax Rate 35% (given)
Debt 60%
(from bank, cost is 5%)

Equity 40%
(from owners, cost is 10%)

What is the cost of capital now?
Use WACC!


Where:

Re = cost of equity

Rd = cost of debt

E = market value of the firm's equity

D = market value of the firm's debt

V = E + D

E/V = percentage of financing that is equity

D/V = percentage of financing that is debt

Tc = corporate tax rate

Reference: Investopedia, Wiki, MBAbullshit, and my brain
2017-04-22 00:11:45
全名係咩
2017-04-22 00:21:06
全名係咩

Weighted Average Cost of Capital
2017-04-22 00:22:11
Example:
Company Tax Rate 35% (given)
Debt 60%
(from bank, cost is 5%)

Equity 40%
(from owners, cost is 10%)

What is the cost of capital now?
Use WACC!


Where:

Re = cost of equity/ rate of return expected by the investors/owners

Rd = cost of debt/ rate of debt

E = market value of the firm's equity

D = market value of the firm's debt

V = E + D

E/V = percentage of financing that is equity

D/V = percentage of financing that is debt

Tc = corporate tax rate (35% given above)

WACC = 60%(5%)(1-35%) + 40%(10%) = 5.95%

5.95% What does that mean?
It shows HOW MUCH IT COSTS for your company to get money

Let say there is a new project allowing you to earn 4% of return.
Then you won't do the project if the cost of capital is 5.95% (>4%, loss of 1.95%)

Remember! ONLY use WACC when the company has BOTH debt and equity
2017-04-22 00:23:11
Again, a company's assets are financed by either debt or equity.

WACC is the average of the costs of these sources of financing, each of which is weighted by its respective use in the given situation.

By taking a weighted average, we can see how much interest(cost) the company has to pay for every dollar it finances.
2017-04-22 00:25:00
大學基本知識

近排interview比人問到
叫我解釋WACC
2017-04-22 00:25:00
One may ask that why debt has a tax reduction component applies on it.

The answer is that interest payment from debt is in fact tax deductible, that is treating the interest payment as a form of expenses.

(Recall that tax only applies on profit, that is income - expense)

Search "Tax Shield" for more detail information
2017-04-22 00:26:48
Example:
Remember! ONLY use WACC when the company has BOTH debt and equity


What if different investors are looking for different rate of return?
2017-04-22 00:27:50
有冇中文？
2017-04-22 00:32:51
Example:
Remember! ONLY use WACC when the company has BOTH debt and equity


What if different investors are looking for different rate of return?


Or a company is funded by different sources of debts, do you still use WACC of there is another way of calculating the cost of capital?
2017-04-22 00:33:24
Example:
Remember! ONLY use WACC when the company has BOTH debt and equity


What if different investors are looking for different rate of return?


Or a company is funded by different sources of debts, do you still use WACC or there is another way of calculating the cost of capital?
2017-04-22 00:38:33
Example:
Remember! ONLY use WACC when the company has BOTH debt and equity


What if different investors are looking for different rate of return?


Competitive capital market，return係market required return。
大的group，如preferred stock/bank debt/ corporate bonds/convertibles可以分開計。
2017-04-22 00:47:04
大學基本知識

近排interview比人問到
叫我解釋WACC

見咩工？
2017-04-22 00:51:38
留名學野

利申：QP FE 今期special topic
2017-04-22 00:54:34
留名學野

利申：QP FE 今期special topic

留名
Jun 16 因為溫左risk adjusted WACC 所以合格左MB
2017-04-22 00:57:31
2017-04-22 00:58:21
留名學野

利申：QP FE 今期special topic

留名
Jun 16 因為溫左risk adjusted WACC 所以合格左MB

2017-04-22 00:59:37
留名學野

利申：QP FE 今期special topic

留名
Jun 16 因為溫左risk adjusted WACC 所以合格左MB


但Dec 16 fail 左MA
仲差呢科先可以打大佬
2017-04-22 01:00:45
等我貢獻下先

WACC 中的
Ke,Kd 再深入d 可以用其他 thoery derive 出黎

如ke 可用CAPM, Kd 用 dividend growth model
2017-04-22 01:01:29
留名學野

利申：QP FE 今期special topic

留名
Jun 16 因為溫左risk adjusted WACC 所以合格左MB


但Dec 16 fail 左MA
仲差呢科先可以打大佬
加油
2017-04-22 01:06:16
應用上wacc可以玩好耐先搵到一個岩既數
E.g. Industry re-levered beta, country risk premium , risk-free rate using CDS, weighted average interest rate etc
2017-04-24 06:20:24
Simple way to learn WACC:

1. To do business, you need money
We call that amount of money => "Capital" (資本)

2. Where do you get this "Capital" ?
Get it from either
(i) company owners/investors => EQUITY
or (ii) borrowing from banks or other sources => DEBT

3. If you borrow $$ from banks, you need to pay the cost
=> interest on your loan
e.g. if interest rate is 10%, then your cost of capital is 10%

4. If you get the capital from investors, you still need to pay the cost
=> expected return of investors
If investors are expecting a 10% average return by investing with you,
then your cost of capital is 10%

5. What if you get capital from both investors and banks, like 60% of your capital coming from debt and the remaining 40% coming from equity? Then how to calculate the cost of capital?
=> Use WACC, Weighted Average Cost of Capital

Example:
Company Tax Rate 35% (given)
Debt 60%
(from bank, cost is 5%)

Equity 40%
(from owners, cost is 10%)

What is the cost of capital now?
Use WACC!


Where:

Re = cost of equity

Rd = cost of debt

E = market value of the firm's equity

D = market value of the firm's debt

V = E + D

E/V = percentage of financing that is equity

D/V = percentage of financing that is debt

Tc = corporate tax rate

Reference: Investopedia, Wiki, MBAbullshit, and my brain


lm
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