# How do you do a WACC analysis?

## How do you do a WACC analysis?

WACC is calculated by multiplying the cost of each capital source (debt and equity) by its relevant weight by market value, and then adding the products together to determine the total. The cost of equity can be found using the capital asset pricing model (CAPM).

What is Ford’s cost of debt?

Ford Motor’s cost of debt (after-tax) is 9.2%.

### What does a 5% WACC mean?

The people who bought those bonds expect a 5% return, so XYZ’s cost of debt is 5%. The more complex a company’s capital structure, the more complex and onerous the WACC calculation will be. But it’s a process well worth undertaking because it can pave the pay for successful and profitable operations.

How do you calculate the WACC of a listed company?

WACC Formula = (E/V * Ke) + (D/V) * Kd * (1 – Tax rate)

1. E = Market Value of Equity.
2. V = Total market value of equity & debt.
3. Ke = Cost of Equity.
4. D = Market Value of Debt.
5. Kd = Cost of Debt.
6. Tax Rate = Corporate Tax Rate.

#### What is WACC example?

Notice in the Weighted Average Cost of Capital (WACC) formula above that the cost of debt is adjusted lower to reflect the company’s tax rate. For example, a company with a 10% cost of debt and a 25% tax rate has a cost of debt of 10% x (1-0.25) = 7.5% after the tax adjustment.

Whats a good WACC?

As a rule of thumb, a good WACC is one that is in line with the sector average. When investors and lenders require a higher rate of return to finance a company it may indicate that they consider it riskier than the sector.

## Is Ford debt a problem?

The image below, which you can click on for greater detail, shows that Ford Motor had debt of US\$144.6b at the end of September 2021, a reduction from US\$157.3b over a year. However, it also had US\$31.4b in cash, and so its net debt is US\$113.2b.

What is Ford’s debt to equity ratio?

Ford Motor’s Debt And Its 9.8% ROE It appears that Ford Motor makes extensive use of debt to improve its returns, because it has an alarmingly high debt to equity ratio of 4.22.

### What is a reasonable WACC?

Why do you want a low WACC?

A high WACC indicates that a company is spending a comparatively large amount of money in order to raise capital, which means that the company may be risky. On the other hand, a low WACC indicates that the company acquires capital cheaply.

#### What is a good WACC percentage?

If debtholders require a 10% return on their investment and shareholders require a 20% return, then, on average, projects funded by the bag will have to return 15% to satisfy debt and equity holders. Fifteen percent is the WACC.

Do companies report WACC?

Companies usually do an internal WACC calculation to assess overall company health. The larger and more complex a company is, the harder it is to determine WACC. Unfortunately, only some of the information needed to calculate WACC can be found on a balance sheet.

## What does WACC stand for in stock?

Debt

• Preferred Stock
• Common Equity
• What does WACC stand for?

What does WACC stand for? weighted average cost of capital. What are the 3 assumptions of WACC. 1. All assets financed with debt and equity 2. current proportions of debt and equity will be the same in the future 3. the risk of the current project is the same as the risk of our new project.

### What are the advantages of WACC?

Calculation of a firm’s cost of capital in which each category of capital is proportionately weighted.

• Incorporates all sources of a company’s capital—including common stock,preferred stock,bonds,and any other long-term debt.
• Can be used as a hurdle rate against which companies and investors can gauge ROIC performance.
• What exactly is the use of WACC?

Fair valuation of Stock is inversely proportional to the WACC.

• As the Weighted Average Cost of Capital increases,the fair valuation dramatically decreases.
• At the growth rate of 1% and the WACC of 7%,Alibaba Fair valuation was at\$214 billion.