Explain the definition of WACC

An investment bank computed my WACC. The report is as: “the definition of the WACC is defined as WACC = RF + βu (RM – RF); here RF being the risk-free rate and βu the unleveraged beta and RM the market risk rate.” It is differ from what we have seen within our class. Are they right?

View Complete Question

Comments & Conversion

Expert

Verified

No. This given formula is not the definition of WACC but it is of required return to the shares of the unlevered company (Ku).

Related Questions in Corporate Finance

Q : Calculating Super normal profit The

The case study of an economic analysis is done for Schlumberger, oilfield Service Company. They are No. 1 in terms of market caps, revenue and employees globally. When any references are used/outside sources (except for Schlumberger's annual reports and financia

Q : Is the market risk premium a parameter

Is the market risk premium a parameter, for the world economy or for the national economy?

Q : Purchaing or leasing problem Crawford

Crawford Corporation is planning to lease a machine for the next 4 years for an annual lease payment of $3,000 paid in advance, plus a non-refundable initial fee of $3,000. There is a 1-year delay for the tax benefits of leasing. Crawford may buy the machine, deprecia

Q : What is real gross domestic product

Real gross domestic product: If GDP of a particular year is estimated or evaluated on the basis of the base year prices it is termed as real gross domestic product.

Q : Structure of Interest rates Which

Which determines the shape of the term structure of Interest rates?

Q : Earnings management What do you mean by

What do you mean by Earnings management and what are their actions and activities?

Q : Compute a company's cost of capital in

How can we compute a company's cost of capital in emerging nations, particularly when there is no state bond that we could take as a reference?

Q : Abnormal profits based on fundamental

If it is possible to make abnormal profits based on fundamental analysis, you can conclude that the market is: A) Not weak-form efficientB) Weak-form efficientC) Not semi-strong-form efficientD) Semi-strong-form e

Q : Cost of capital You have joined Zurich

You have joined Zurich Pvt. Ltd as a Finance manager. You are given the following information: Zurich Pvt Ltd. is a diversified manufacturing firm dealing with electrical appliances. In 2012, the firm reported an operating income of Rs. 857.60 million and faced a tax rate of 35% on income. The

Q : Types of agency Types of agency :

Types of agency: Specific types of Agency include:A) Auctioneers: Are an agent of vendor until the fall of the hammer when they become an agent for the purchaser.B)

Discover Q & A

Leading Solution Library

Avail More Than 1423777 Solved problems, classrooms assignments, textbook's solutions, for quick Downloads

No hassle, Instant Access

Start Discovering

18,76,764

1947854
Asked

3,689

Active Tutors

1423777

Questions
Answered

Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!

Submit Assignment