--%>
Assignment Help - homework help

In which cases use different WACCs

Is this possible to use different WACCs within order to discount each year’s flows? In which cases?

E

Expert

Verified

Yes, this is possible. The WACC can only be constant while a constant debt is expected. When debt changes from one year to the next, therefore the WACC also changes from one year to the next, as per to the formula:

WACCt = [Et-1 Ket + Dt-1 Kdt (1–T)] / [Et-1 + Dt-1]

Ke is the required return to equity, Kd is the cost of debt and T is the effective rate of income tax. Et-1 and Dt-1 are the values of the shares and the debt that are acquired in the valuation. Such formula for WACC means that the value of the debt coincides along with its book value.

   Related Questions in Corporate Finance

  • Q : Problem on binomial option pricing model

    The share price of Cheung Kong (Holdings) Limited is currently at $100. Over each of the next two three-month periods, you expect its price will either increase by 10% or fall by 10% in each three-month period. If the Hong Kong interbank offered rate is 8% per annum w

    		•
  • Q : Does the book value of the debt

    Does the book value of the debt all the time coincide with its market value?

    		•
  • Q : Define the term Stock Market crash

    Stock Market Crash was responsible for the Great Depression. Middle class families lost all their savings as they had gambled the market on margin.Those banks which were under the loan ofbrokers’ started removing money out of the savings account

    		•
  • Q : FIN3000 Corporate Finance Task

    Task Description Length: 1000-2000 words (up to 500 words above 2000 permitted) Description: • Complete this assignment in groups of 4-5 students. • Maintain a portfolio of financial issues taken from 8 news sources. • Analyse the articles with reference to theory covered in class and h

    		•
  • Q : Define capital goods Capital goods :

    Capital goods: Goods employed in producing other goods are termed as capital goods.

    		•
  • Q : All rates are stated annually with

    1 Assume the following (all rates are stated annually with semiannual compounding) a. Six Month Spot Rate is 2% b. Six Month Forward rate starting at month six is 2.2% c. Six Month Forward rate starting at month 12 is 2.4% d. Six Month Forward rate starting at mont

    		•
  • Q : Explain deducing yield curve model

    Explain deducing yield curve model of HJM.

    		•
  • Q : What is the required rate of return on

    Woidtke Manufacturing's stock currently sells for $29 a share. The stock just paid a dividend of $2.50 a share (i.e., D0 = $2.50), and the dividend is expected to grow forever at a constant rate of 9% a year. What st

    		•
  • Q : Explain usual value of the sales of net

    Does the usual value of the sales and of the net income of Spanish companies have anything to do along with sustainable growth?

    		•
  • Q : Marketing Decisions & Profitability

    Marketing Decisions Assignment:  Email the answers to the following questions in an attached word document using the proper file name format as follows:  1   

    		•