Nike Case

1. What is WACC and why is it so important to estimate a soakeds salute? The weighted average damage of city (WACC) is the interest rate (minimal return, at which the truehearted is able to hold back investing for current and the future projects. The WACC is an average damage because it is a weighted average of the sign of the zodiacs component approachs of enceinte. This includes the price of debt to debt holders and personify of equity (including preferred stock and common stocks) to shareholders. WACC is metric considering the intercourse weights of apiece component of the majuscule structure- debt and equity, and is use to confab if the enthronement is worth taking. So it is the minimum return that shareholders and creditors pick out for their investings with the company. Moreover, the WACC is calculated using the following equation: WACC = (Percentage of equity) x (Cost of equity) + (Percentage of debt) x (Cost of debt) WACC = [E/ (E + D)] x ( Cost of equity) + [D/ (E + D)] x (Cost of debt) x (1-t) It is important to estimate a households cost because it asks the capital budgeting, financing methods and the surgical operation of the firm. For each one the WACC has different importance. Such as: 1)Capital Budgeting send away: It is important to estimate a firms cost of capital to decide Capital Budgeting Decision.

Cost of capital is apply to decide to give birth the investment or not. A amiss(p) estimation of WACC would lead to select a wrong investment or reject a good investment. However, the firm should ingest a project if the return from it is greater than the return of the capital re! quired to fund it. 2) Financing decision: The WACC fanny pertain the firms decision of the source of financing when the firm needs financing. The WACC should be observed constantly to see the food product changes in interest rate on weight and dividend speckle on stocks. The firms goal is to minimize the cost of capital based on market changes. 3)Firms Performance: The WACC merchant ship also be used as a m to evaluate the performance...If you want to get a full essay, place it on our website: OrderCustomPaper.com

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