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Sagot :
The appropriate discount rate to use only if the proposed investment is a replica of the firm's existing operating activities is WACC.
The weighted common price of capital (WACC) represents a firm's average after-tax price of capital from all resources, inclusive of common inventory, favored stock, bonds, and other kinds of debt. WACC is the common rate an enterprise expects to pay to finance its belongings.
WACC is calculated via multiplying the price of each capital source (debt and equity) with the aid of its relevant weight by marketplace cost, after which adding the products collectively to decide the total. The price of equity may be found using the capital asset pricing model (CAPM).
The weighted average cost of capital is the charge that an enterprise is expected to pay on average to all its security holders to finance its assets. The WACC is typically called the firm's cost of capital. Importantly, it's miles are dictated by means of the outside marketplace and not by control.
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