Wacc & npv

[cpooche]

Where is the tax rate figured in the problem?

 

[Deleted member 4993]

Where is the tax rate figured in the problem?

What problem? You did not post one!!

What are your thoughts?

Please share your work with us ...even if you know it is wrong

If you are stuck at the beginning tell us and we'll start with the definitions.

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[Steven G]

Where is the tax rate figured in the problem?

x%

 

[DexterOnline]

There are various formulas employed in calculation of WACC - weighted average cost of capital which is in turn used as the interest rate to discount the cash flows in net present value calculations

WACC usually has three components

1) Cost of Common stock
2) Cost of Preferred Stock
3) Cost of Debt

Some integrate the equity part in one

1) Cost of Equity
2) Cost of Debt

Finding cost of equity may be done by employing CAPM model - capital asset pricing model, here you would need to know the risk free rate, Beta and market rate of return

Tax is applied in after tax cost of debt calculations

\(\displaystyle WACC = k_cs * w_cs + k_ps * w_ps + (1-TaxRate) * k_d * w_kd\)

where k denotes cost of each component and w the proportion or the weight of each component, the sum of weights must equal 1.