Wacc

Chapter 13, ROIC and WACC Lakehead University Winter 2005 Role of the CFO The Chief Financial Of?conditioned emotional response (CFO) is tough in the following decisions: Management Decisions Financing Decisions enthronisation Decisions 2 Performance Measurement present atomic number 18 more or less measures of performance a company bunghole use: fee per share (EPS), growth in EPS put across on invested jacket crown (ROIC) Return on integrity sparing master?t (EP) 3 Performance Measurement What is ROIC? Pre-tax ROIC: EBIT Invested bully After-tax ROIC: (1 ? t )EBIT , Invested chapiter where invested jacket crown is the sum of (the volume value of) notes payable, long-term debt, preferred strain and usual equity, and t is the companys tax rate. 4 Performance Measurement The ?rms frugal pro?t, on the other hand, is given by EP = (ROIC ? WACC) × Invested capital. 5 plodding honest Cost of detonator (WACC) What is the WACC? Projects of levered ?rms are simultaneously ?nanced with both debt and equity. The bell of a ?rms capital is a weighted average of the constitute of debt and the cost of equity. Since avocation is a tax-deductible expense, we must use the after-tax cost of debt.

6  lading Average Cost of Capital (WACC) The equation for a ?rms WACC is WACC = wd × (1 ? t )kd + w ps × k ps + we × ke , where d , ps and e stand for debt, preferred stock and common equity, respectively, wi stands for the weight of item i in the ?rms capital structure, i = d , ps, e, and ki stands for the c ost (in %) of item i. 7 Weighted Aver! age Cost of Capital (WACC) What weights must be apply in WACC calculations? How to calculate the cost of debt and the cost of equity? 8 Weighted Average Cost of Capital (WACC) A ?rms correspondence sheet can be represented as follows: in operation(p) Assets Invested Capital Short-Term Debt NOWC Long-term Debt intractable Assets Equity 9 Weighted Average Cost of Capital (WACC) In the previous slide,...If you want to get a skilful essay, auberge it on our website: OrderCustomPaper.com

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