View cart “Financial Institution Dividend Discount Model” has been added to your cart.
Weighted average cost of capital (WACC) is the required return a company should generate for the risk associated with investing capital in the company. Another way of looking at WACC is to see it as the minimum rate of return an enterprise should earn in order to create value for its investors. In effect, it represents the opportunity cost of the firm.
The WACC formula used by the calculator in the Excel template is:
WACC = (E/V x Re) + ((D/V x Rd) x (1 – T))
E = market value of the firm’s equity (market cap)
D = market value of the firm’s debt
V = total value of capital (equity plus debt)
E/V = percentage of capital that is equity
D/V = percentage of capital that is debt
Re = cost of equity (required rate of return)
Rd = cost of debt (yield to maturity on existing debt)
T = tax rate