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Money Inc., has debt outstanding currently worth $15 billion at an interest rate of 8%. if the firm's tax rate is 30%, 7.11% is the wacc.
What is WACC?
The weighted average cost of capital (WACC) is a measure of a company's overall average after-tax cost of capital, encompassing common stock, preferred stock, bonds, and other types of debt. The average interest rate a business anticipates paying to finance its assets is known as WACC.
Because it expresses in a single number the return that both bondholders and shareholders expect in order to provide the company with capital, the weighted average cost of capital (WACC) is a popular method for calculating the needed rate of return. A company's WACC is probably going to be higher if its stock is more volatile or if investors think its debt is riskier because they will be looking for larger returns.
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