Cost of Capital: AMD and Duke Energy

Then we can use the following formula to calculate the WACC. The cost of debt is taken to be on an after tax basis to further to account for the depreciation tax shield.

We assume that risk free rate (Rf) equals rate of long-term Treasury Bonds (as the project’s life is 10 years), so Rf = 9.5%.

Weighted Average Cost of Capital (WACC) is the combined rate at which a company repays borrowed capital and comes from debit financing and equity capital. WACC can be reduced by cutting debt financing costs, lowering equity costs, and capital restructuring. In order to minimize WACC, companies can issue bonds by lowering the interest rate they offer to investors as well as, cutting down

WACC= (%of debt) (after-tax cost of debt) + (% of preferred stock)(Cost of preferred stock) + (% of common equity) (Cost of common equity)

According to the company’s annual report in 2009, the Federal statutory tax rate is 35%. Along with the above analysis, we have gathered all the key information necessary to estimate the WACC as following:

Answer: WACC covers computation of SIVMED’s cost of capital in which each category of capital is proportionately weighted. All capital basis - common stock, preferred stock, bonds or any other long-term borrowings – should be listed under SIVMED’s WACC. We determine WACC by multiplying the cost of the corresponding capital component by its proportional weight and then adding: where: Re is a cost of equity Rd is a cost of debt E is a market value of the firm's equity D is a market value of the firm's debt V equals E + D E/V is a proportion of financing that is equity

In order to find the WACC, we need to find the cost of the components of the capital structure and their proportion in the total capital.

Weighted average cost of capital (WACC) is a calculation of a firm’s cost of capital which each type of capital is proportionately weighted. WACC is used as a discount rate for investment appraisal. Hence, calculating WACC of a firm is important.

Moreover, let’s calculate the Weighted Average Cost of Capital (WACC). And in order to calculate it we need to know the capital structure of the company. Knowing the capital structure of the

Also, the WACC of our company is always around 5.5%, we can use Monte Carlo Simulation to run the estimation of Equity value by changing WACC, growth rate and COGS/Revenue each year. The random calculation displays as the full report in attachment.

As long-term valuation is assumed, risk free rate is set as 30-year treasury rate, 5.73%. Cost of debt is 6.72% reflecting Amoco’s credit level. Cost of equity is calculated as 10.63%, leading to final WACC at 8.85% (Chart 1).

Kd (Wd), Ke (We) and Kp (Wp) are the costs (weights) associated, respectively, with the firm’s interest bearing debt,

All of these calculated figures can then be used to calculate the WACC which is (17% x 3.47%) + (83% x 11.2%) = 9.87% WACC. This WACC percentage can then be used to value the investment and as a comparative in valuation methods. The full calculation and numerical values are shown in Appendix 1.

On a firm-wide level, the resulting cost of equity is found to be 11.30% and the WACC is 8.50%.

For all of these techniques company need the incremental cash flows which will be generate from the investment or the project. Then these cash flows are discounted according to the company cost of capital rate which is also known as weighted average cost of capital (WACC).