Nike Case

1. What is WACC and why is it so important to estimate a nettleds 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 speak tos of enceinte. This includes the price of debt to debt holders and comprise of equity (including preferred stock and common stocks) to shareholders. WACC is metric considering the intercourse weights of apiece component of the working capital structure- debt and equity, and is use to front if the enthronement is worth taking. So it is the minimum return that shareholders and creditors read for their investments 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 (Cost of equity) + [D/ (E + D)] x (Cost of debt) x (1-t) It is important to estimate a quicks cost because it asks the capital budgeting, financing methods and the execution of the firm. For each one the WACC has different importance. Such as: 1)Capital Budgeting supplant: It is important to estimate a firms cost of capital to decide Capital Budgeting Decision. Cost of capital is apply 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 fancy 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 advert the firms decision of the source of financing when the firm needs financing. The WACC should be observed constantly to see the foodstuff changes in interest rate on weight and dividend regulate on stocks. The firms goal is to minimize the cost of capital based on mark et changes. 3)Firms Performance: The WACC ! bay window also be used as a m to evaluate the performance...If you want to get a full essay, order it on our website: OrderCustomPaper.com

If you want to get a full essay, visit our page: write my paper