Relationship Between Wacc & Blackberry’s Value

1088 Words Jun 24th, 2013 5 Pages
Executive Summary:

The purpose of this paper is to identify the weighted average cost of capital (WACC) in relation with the firm value. Also, there are some aspects discussed in the paper regarding when a firm should accept a project and when to reject. Systematic risk will be also discussed in the paper concerning their target market and how risky is that. Finally, the approach that BlackBerry took into consideration to overcome their risk.
Discussion:
All companies’ assets are financed by either equity or debt. The equity is the amount of fund that contributed by the shareholders. The debt is the amount of money that the company borrowed from banks. WACC is the average cost of growing the capital in the company. For example, if the
…show more content…
In a situation like this, the company cannot cover how much they spend into their capital expenditure because of the minority of their target market. On the other hand, its competitors Apple and Google are in good shape because they are main target markets are people who are interested into games. This is a benefit for these two competitors because the majority is interested into these types of phones. In order for BlackBerry to get better and perform well they need to expand their target market.
Along with expanding the target market, BlackBerry has announced their new phone Z10 which is mainly for people who are into games. A big success for BlackBerry has been realized after this new phone is on the market. Moreover, in the firs quarter of the current year, BlackBerry has sold 4 millions Z10 phones. On the other hand, the new phone Q10 that is mainly targeting business people have a sale record of just below 1 million phones (Quintaro, 2013).
In conclusion, WACC is an important tool that indicates how much can investors expect their rate of return would be. Also, it is an indicator of how risky the firm is. The riskier the firm, the higher the WACC would be. On the other hand, the NPV shows and suggest whether the firm should go ahead with the project or not. When the NPV is negative, companies should reject the project. BlackBerry’s risk is that they only target