Weighted-average cost of capital

Required revenues are the sum of operation and maintenance expenses, depreciation, taxes, and a return on rate base. The rate base is the total amount of fixed capital used by the utility in producing, transmitting, and delivering electricity. The return on rate base IS the weighted average cost of capital, including debt and equity sources. 

The capital cost rate tp reflects the company-specific interest rate applied to calculate capital costs on working capital like inventories and outstanding liabilities or used for net present value calculation. In case of market financed corporations, the weighted average cost of capital (WACC) is used as opportunity capital cost rate. WACC considers the mixed financing structure of a company consisting of equity and debt capital4. 

Weighted Average Cost of Capital World Trade Organization... 

However, if chemicals are irredeemably cyclical, does that make commodity chemicals an unattractive business In our view, the key is to look beyond individual cycles, at the long-term profitability of the sector. This reveals a perhaps surprising judgment, in view of conventional wisdom about the sector s unattractiveness commodity chemicals have earned returns above their weighted average cost of capital (WACC) across a number of cycles, making it very different and a much better performer than most other commodity sectors. 

The discount rate is a weighted average cost of capital (WACC) and takes into account the capital structure of firms, cost of equity and debt, and income taxes. The capital structure of firms is assumed to be 30% equity and 70% debt. The cost of equity capital is 10%, the cost of debt is 7%, and the effective income tax rate is 39%. The debt instrument is assumed to be a 20 year, 7% coupon bond. The calculation of the discount rate is... 

The definition of net cash flow (NCF) for capital budgeting purposes is after tax cash flows from operations discounted at the present value of the cost of capital.26 In net present value analysis the cost of capital is a pre determined value based on the opportunity cost of capital. The cost of capital is defined as a weighted average cost of capital (WACC) and takes into account the firm s capital structure, the cost of equity and debt capital, and tax rates. The formula for the weighted average cost of capital (WACC) is... 

The cost of capital is the rate of return investors require to induce them to invest in a company with a given level of risk. The weighted average cost of capital is the blended cost of the fro s debt and equity capital (285,409). 

OTA estimated the weighted average cost of capital for the three samples based on the evidence summarized above. Because the control firms have much higher debt-to-equity ratios than do the pharmaceutical companies, OTA used parameter estimates that would tend to understate the cost of debt and overstate the cost of equity. The computed costs of capital are therefore biased in favor of a higher cost of capital in the pharmaceutical industry. 

U.S. Department of Agriculture —United States Servicemen s Fund, Inc. —weighted average cost of capital —Wisconsin Alumni Research Foundation... 

That does not mean that the weighted average cost of capital (WACC) of large companies will not be altered if they want to build a number of nuclear plants. Each project, if it is perceived as risky, will add a small risk premium to the WACC of the companies by decreasing the credit rating, but ultimately, applied to a large volume of capital, it could have an important effect, as already mentioned above. Moreover, the total equity investment in several nuclear builds could eventually reach the same precautionary threshold of 15 percent of market capitalization (for instance 6 billion in equity for four plants for a market cap of 40 billion) as one nuclear build for a small company. 

The firm cost of capital, which is the hurdle rate that an investment must achieve before it increases shareholder value, is one key aspect of these decisions that engineers have overlooked. Such cost of capital is measured typically by the firm s weighted average cost of capital (WACC) rate wacc- For a firm that uses only debt and common equity to finance its projects, this rate is given by ... 

Financial management also suggests the alternative that the appropriate discount rate to evaluate the NPV of a project is the weighted average cost of capital, based on one important assumption that the risk profile of the firm is constant over time. In addition, this is Uiie only when the project carries the same risk as the whole firm. When that is not true, which is most of the time, finance management has more elaborate answers, like managerial decisions that shape the risk. 

The capital costs of a company are used to discount its future cash flows. The discount rate often is proxied by the weighted average cost of capital (WACC). The company s value can be computed from the sum of the discounted cash flows. The company s value increases with higher cash flows or a lower discount rate. The WACC is calculated by weighting the costs for debt and equity with their proportions of total capital ... 

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