On the understanding that the objective is to derive a cost of capital that can be used in making basic investment appraisals, we can rely upon the following WACC
The value $113 million is calculated by grossing up WACC
by the marginal tax rate.
For instance, at the end of stage 2, the project should be expected to achieve a return of at least 20 percent above WACC
, whereas this figure will have fallen to 10 percent at the completion of construction and prior to commissioning.
In contrast, when using the FCF method, the after-tax WACC
has to be re-estimated every period.
However, being familiar with the standard model, they focus on ROE and WACC
For example, assuming a nominal cost of unlevered equity of 15%, a capital structure comprised of 30% debt and 70% equity, and a marginal income tax rate of 40%, the nominal WACC
discount rate would be calculated as 15% x [1 -(40% x 30%)] = 13.
There is considerable room for questioning the magnitude of capital constraints generated by MARR or WACC
discount rates because they are independent of the relative scales of investment and borrowing opportunities.
Under an MWACC approach, all payments relating to items considered liabilities for tax purposes are removed from the cash flow model at their net present value (as estimated by a professional appraiser) and are deemed to be liabilities similar to interest-bearing debt in the WACC
comparisons may be subject to error because the cost of capital measures may not be applied to appropriate definitions of operating cash flows whose qualities, time-growth patterns, and risk may differ.
is widely reviewed across corporate finance departments, it is generally seen as an imperfect measure of a firm's cost of capital.
Transport of staff to WACC
Madrid I, II and CIS Madrid Alcala de Henares.
Rex Bionics is trading at a significant discount to its peers on EV/sales and a reverse DCF with 15% WACC
and 3% terminal growth implies that annual sales need to grow to only 207 units by 2020 to justify the current share price.