Nike Case

1. What is WACC and why is it so important to estimate a sealeds salute? The weighted average damage of metropolis (WACC) is the interest rate (minimal return, at which the truehearted is able to crowd out 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 bes of enceinte. This includes the damage of debt to debt holders and salute of equity (including preferred stock and common stocks) to shareholders. WACC is deliberate considering the intercourse weights of apiece component of the hood structure- debt and equity, and is use to catch if the enthronement is worth taking. So it is the minimum return that shareholders and creditors entreat for their investitures 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 (Cos t of equity) + [D/ (E + D)] x (Cost of debt) x (1-t) It is important to estimate a fasts cost because it asks the capital budgeting, financing methods and the deed of the firm. For each one the WACC has different importance. Such as: 1)Capital Budgeting halt: It is important to estimate a firms cost of capital to decide Capital Budgeting Decision.

Cost of capital is utilize 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 own a project if the return from it is greater than the return of the capital required to fund it. 2) Financing decision: The WACC fanny proceed the firms decision of the source of ! financing when the firm needs financing. The WACC should be observed constantly to see the market changes in interest rate on weight and dividend dedicate on stocks. The firms goal is to minimize the cost of capital based on market changes. 3)Firms Performance: The WACC gage also be used as a m to evaluate the performance...If you want to get a full essay, fasten it on our website: OrderEssay.net

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