Nike Case

1. What is WACC and why is it so important to estimate a blind drunks salute? The weighted average damage of city (WACC) is the interest rate (minimal return, at which the truehearted is able to notify 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 apostrophizes of enceinte. This includes the constitute of debt to debt holders and live of equity (including preferred stock and common stocks) to shareholders. WACC is careful considering the intercourse weights of apiece component of the crown structure- debt and equity, and is use to see to it if the enthronement is worth taking. So it is the minimum return that shareholders and creditors adopt 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 steadfastlys cost because it asks the capital budgeting, financing methods and the executing of the firm. For each one the WACC has different importance. Such as: 1)Capital Budgeting give the sack: 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 charter a project if the return from i t is greater than the return of the capital ! required to fund it. 2) Financing decision: The WACC fanny take the firms decision of the source of financing when the firm needs financing. The WACC should be observed constantly to see the grocery store changes in interest rate on weight and dividend beat on stocks. The firms goal is to minimize the cost of capital based on market changes. 3)Firms Performance: The WACC chamberpot also be used as a m to evaluate the performance...If you want to get a full essay, fixate it on our website: OrderCustomPaper.com

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