Book Value Wacc Formula

The wacc formula discussed above does not include preferred stock.

Book value wacc formula. A cost of debt r debt and a cost of equity r equity both multiplied by the proportion of the company s debt and equity capital respectively. What is the wacc formula. The wacc is 4 2 with the calculation being 85 4 3 15 4 7 1 30.

Gurufocus uses book value of debt d to do the calculation. The e v and d v are simply weighted proportions. Disadvantage raising the finance at a predefined ratio is very difficult in the market and not in our control.

The wacc of 14 25 book value or 15 67 market value will remain more or less consistent. The wacc formula is calculated by dividing the market value of the firm s equity by the total market value of the company s equity and debt multiplied by the cost of equity multiplied by the market value of the company s debt by the total market value of the company s equity and debt multiplied by the cost of debt times 1 minus the corporate income tax rate. As shown below the wacc formula is.

It is simplified by adding latest two year average short term debt capital lease obligation and long term debt capital lease obligation together. How to calculate wacc wacc is calculated by multiplying the cost of each capital source debt and equity by its relevant weight and then adding the products together to determine the value. Notice there are two components of the wacc formula above.

Let s look at the wacc formula first wacc formula e v ke d v kd 1 tax now we will put the information for company a weighted average cost of capital formula of company a 3 5 0 04 2 5 0 06 0 65 0 0396 3 96. Estimate the market value of equity using the wacc initial estimate first year ncf projection and the average ncf growth rate from above. Use the wacc formula and the book value of business equity to calculate the initial estimate of wacc.

Finally we re ready to calculate walmart s weighted average cost of capital wacc. Re calculate the wacc using the new equity value estimate while keeping the debt values constant. Iteratively adjust the initial wacc input until it approximates the calculated wacc result.