Nike Case

1. What is WACC and why is it so important to estimate a so utilises salute? The weighted average damage of chief city (WACC) is the interest rate (minimal return, at which the truehearted is able to lay off 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 damages of enceinte. This includes the follow of debt to debt holders and appeal of equity (including preferred stock and common stocks) to shareholders. WACC is mensurable considering the intercourse weights of apiece component of the uppercase structure- debt and equity, and is use to fix if the enthronement is worth taking. So it is the minimum return that shareholders and creditors direct for their enthronements 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 fuddleds cost because it asks the capital budgeting, financing methods and the act of the firm. For each one the WACC has different importance. Such as: 1)Capital Budgeting ratiocination: It is important to estimate a firms cost of capital to decide Capital Budgeting Decision.

Cost of capital is used 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 immerse a project if the return from it is grea ter than the return of the capital required ! to fund it. 2) Financing decision: The WACC fanny scratch the firms decision of the source of financing when the firm needs financing. The WACC should be observed constantly to see the foodstuff changes in interest rate on weight and dividend point on stocks. The firms goal is to minimize the cost of capital based on market changes. 3)Firms Performance: The WACC apprise also be used as a m to evaluate the performance...If you want to get a full essay, micturate it on our website: OrderCustomPaper.com

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