Nike Inc (Cost of Capital) Free Essay, Term Paper and Book Report
WACC, or the weighted average cost of capital is used by firms to measure its cost of capital. WACC is used by many firms as a discount rate for projects that they are contemplating undertaking to show the amount of financing a project will need and the required rate of return. The Weighted Average Cost of Capitol is the required return a firm must receive from its projects or assets to keep its value constant and appease those who invest in the company.
There are two methods that a corporation will use to raise funds, these are debt (bonds and notes) and equity (shares). The equity portion of a company is separated into preferred and common equity. The WACC equation uses all 3 parts of the company's capital structure. The WACC takes into account the relative weights of each component of the capital structure of the company.
The WACC Equation is Listed Below.
WACC= (wd(1-t)kd)+(wpkp)+we+ke
w = The proportion of the debt and equity used by a corporation
t = tax rate
k = cost of debt/equity, or rate of return that investors require
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Word Count: 691
Page Count: 2.7 (250 words a page / double spaced)
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