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Krisztina, UK
"I have been asked to calculate the WACC using the following info: Capital structure: Ordinary shares (fully paid) :1000000, preference shares: (11%) 400000, debentures: (10%) 600000. The ordinary share holders expect a divident of 14% per year. Corporate tax is estimated at 30%.
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I did a bit of work on the above challenge, but I'm not sure if I'm on the right track... could someone point out if there are any mistakes? (600,000/2.000,000 * 10% * (1-30%)) + (400,000/2.000,000 * 11%) + (1.000,000/2.000,000 * 14%) = 19.2% Thank you for any help provided."
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Calculation of WACC
Mudedla Srinivas Kumar, India
"Though your calculation seems O.K. factoring for Cost of Equity would have made your calculation more refined. which is as follows: Cost of Equity should be : Risk Free return + Beta*Market price." |
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WACC
Antonio Villa Mardon, Peru
"You need to modify the cost of equity as follows:
CE = RfR + B ((Rm-RfR), being RfR the risk free rate B, the beta Rm Expected market return.
This is a basic calculation as you would have to include some risk premiums for the equity, as an example country risk, which is calculated as the differential between spread of a 10yr tBond and the respective spread, lets say EMBI.
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Response to Calculation of WACC
bhavik, India
"Though the calculation is correct, you could have calculated KE using the formula given below i.e. KE = D/PE+G
Where, D = Dividend = the amount of dividend expected, PE = current market price, G = avg growth of the industry. For more details you may refer to the book by I M Pandey ." |
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WACC Calculation
Muhammad Wasim, Pakistan
"As regards to this calculation, I got a result of 11.3% instead of 19.2%, without taking into account the beta and risk free return. Can you please confirm." |
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WACC Calculation
Rishi R Koirala, Nepal
"If you calculate the WACC the following way:
600,000 / 2,000,000 * 10% * (1 - 0.3) + 400,000 / 2,000,000 * 11% + 1,000,000 / 2,000,000 * 14% = 11.3%
I may be wrong but confident. Please confirm." |
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Calculation of WACC
Blessing Katuka, Zimbabwe
"Normally the following steps must be done to calculate WACC:
- Determine different sources of finance.
- Calculate marginal component costs of capital for each category or component.
- Combine component costs and introduce corporate tax.
NB: corporate tax will only affect cost of debt and we need after tax cost to calculate WACC." |
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Calculation of WACC
Ahid Moghal, United Kingdom
"I calculate using a tableau with 5 columns. That makes life much easier, and you can see the whole calculation in one go:
The 5 columns are:
1. Source: list all the sources of finance in the balance sheet - I prefer in order of importance
2. Amount: amount as listed in the balance sheet
3. Market Value of Source: calculate the MV of each source - this reflects the current risk perceived by the market for each source. Add the total of this value.
4. Rate: list the required rate of return by each category. If the category distribution is before tax, then the rate should be net of tax. Otherwise the rate should be gross.
5. WACC: now calculate the proportion of each finance multiplied by its rate for each category of finance and add the total. This now is your WACC." |
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Summary of WACC
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